/ NZ share-trading splurge could trigger tax alarms… NZ share-trading splurge could trigger tax alarms… October 5, 2020
The Inland Revenue Department (IRD) has put retail NZ share-traders on notice of potential tax liabilities amid a technology-enabled rush of novice investors to the NZX.
According to an IRD spokesperson, the tax department has an ongoing “compliance programme that looks into share dealing activities”.
“As new investors are attracted to the market, we will be looking to make sure their tax obligations are clear to them and ensure education is available so investors can work out their own tax situation,” the spokesperson said.
“We’d also encourage existing investors to check they know their tax obligations.”
While NZ shares are not technically subject to capital gains tax (CGT) for local investors, the issue is not clear-cut for individuals who regularly trade stocks for profit.Portfolio investment entities (PIEs) are explicitly exempt from capital gains tax on Australasian shares.
“There is no capital gains tax in New Zealand, however income from the sale of certain shares is taxable where an investor trades on revenue account,” the IRD says.“Shares are held on revenue account where an investor is in the business of trading in shares, is carrying on share trading activities for the purpose of making a profit, or acquires a share with the purpose of disposing of it for a profit.”
The rule puts the onus on the IRD to prove investors are in the share-trading business, which could be made easier as many thousands of New Zealanders have begun dabbling in NZX stocks via the Sharesies platform.
Rapid turnover in share-holdings – a phenomenon increasingly seen overseas on platforms such as Robinhood – coupled with online stock chatter, could provide the IRD with evidence traders have breached the tax threshold.
The IRD could neither confirm nor deny it had requested member trading-information from Sharesies or any other broker.
However, the tax department has recently embarked on a comparable information-gathering exercise in the NZ crypto-currency community.
According to the spokesperson, the IRD “asking for information from a number of crypto companies”.
Easy Crypto, one of the companies caught in the sting, told clients the IRD had requested all their personal information and trading activities for the 12 months ending March 31 this year.
“We strongly believe in privacy and would never hand over personal information unless we were absolutely required to,” the Easy Crypto note says.“We sought multiple legal opinions on this one (including options for exemptions based on privacy, human rights, constitutional rights etc) and there are no grounds on which we can refuse.”
Most realised crypto-currency gains would be taxable (and losses deductible) over any time-frame, IRD advice notes .
Despite the current Labour government putting the prospect of a formal NZ CGT to bed last year, the ‘profit purpose’ rule leaves ‘traders’ in most assets open to further tax obligations.
For example, NZ investors who buy-and-sell properties could have to pay tax on gains as traders or under the recently extended ‘bright-line’ rule.Under the bright-line definition, any property sold within in five years of purchase (excluding the family home) would be subject to tax on profit.
Offshore equities face a different tax treatment than Australasian stocks for NZ investors.
If held for more than one year, investors are taxed at their marginal rates on 5 per cent of the value of their international share holdings.
However, if investors buy and then sell shares within the tax year, they fall under the ‘quick sales’ regime – effectively a realised CGT..
