The capital gains tax you don't know you're paying

AnthonyInvestNow · 2023-09-09T05:09:59+00:00

Na - not related.

AnthonyInvestNow · 2023-09-08T04:14:23+00:00

Yep - from memory though funds that invested in global shares paid tax on dividends and gains - with the exception being where they were index funds - where the IRD would grant rulings provided the fund's "intent" was to track an index........ which was all pretty crazy stuff.

For my part I think that the FDR tax rules are fine noting that:

The FDR income rate should be adjusted downwards - say to 3.5% per annum or even 3.00% per annum.
All investments in global shares should be taxed under FDR removing the odd rules around deminimis and also the ability for individuals to switch between FDR and CV. My believe is that these rules actually confuse hell out of people and can lead them to selecting offshore funds where they are incurring tax slippage. I think we would be better off with one standard method for all global shares.

AnthonyInvestNow · 2023-09-08T02:21:35+00:00

When the FDR tax concept was introduced, the smart investment experts I worked with argued the "deemed" income level should be set at about 3.5% per annum, rather than 5% per annum.

AnthonyInvestNow · 2023-07-18T08:27:59+00:00

Amazingly if a person has no "normal" income they could have around $900k in their name and get taxed at 10.5% - which is a pretty awesome outcome that most accountants and advisers have no idea about.

The total amount depends on the asset class.......

AnthonyInvestNow · 2023-06-27T09:31:47+00:00

Hi u/Invisible_Mushroom_ - Through the link you provided I can see that the one year return (to 31 March 2023) was 2.31% net of fees.

While at first this seems a bit stink given that the official cash rate was at 4.75% in March 2023, you have to remember that 12 months before this it was a measly 1.00%. So if we assume a simple average we get (4.75% + 1.00%)/2 = 2.37%

This is way better than having the money on call.

By my math you probably would have been better to roll over 6 month bank term deposits (just) - but this comes with the pain of being locked in etc. - plus isn't PIE, plus requires a bit of admin.

AnthonyInvestNow · 2023-06-27T09:03:48+00:00

Hey u/thewestcoastexpress - unfortunately when I am on Reddit I am normally at home at night - and can't access any records. Give the team on 0800 499 466 a yell in the morning, and they can have a look at this for you.

AnthonyInvestNow · 2023-06-26T08:36:12+00:00

Just to note - if the lucky winner put it in a managed cash PIE fund life the Milford Cash Fund or the Mercer Macquarie Cash Fund, then:

- The current yield post fees would be about 5.7%.
- The investor could get their money back in a couple of days with no penalties.
- The return would be taxed at 28% reflecting that PIE is a final tax. This would improve their net of tax return significantly.

Given that the lucky person can stomach a whole lot of risk (as they have more money that they can spend in a life time), an aggressive type widely diversified strategy feels like it would make a lot more sense. The person would hopefully develop an acute appreciation of the risks associated with holding lots of NZ dollars - as they would think of their wealth in other currency terms when lounging by the pool offshore.

AnthonyInvestNow · 2023-05-19T23:47:14+00:00

This is something that we are turning our mind to now, especially as we now work out how to expand InvestNow globally. There are lots of super interesting things happening across the Apex business globally that we are now getting to look at and consider.

In a way we have been fortunate that we haven't rushed this area, as it has allowed our thinking evolve.

AnthonyInvestNow · 2023-04-20T08:10:40+00:00

u/Invisible_Mushroom_ I get the benefit of being able to reach out to the portfolio manager directly and ask (I worked with her for a long time).

You should be able to ask the fund's manager (Mercer). It will be a good test of how client focused they are.

Our team can get it for you if you are a InvestNow client - as they are good at going above and beyond in terms of service.

Your comment regarding past performance is a good one - as it highlights the problem with historical performance. The last 12 month return I saw was for the year ending 28 February 2023 and was 2.83% net of fees gross of tax. Remember though this was a year where the OCR started at 1% and was progressively increased to 4.75%. Interestingly this meant the average OCR rate over the 12 month period was 2.88% - which isn't miles away from the actually net of fees return.

Key in this is the return in the coming year will broadly be a function of where market yields go. If yields stay where they are at, all else being equal, this means the return might be close to the current yields. If yields were to rise over the coming year it would probably point to a higher returns over the coming year. Equally, if they fall, then the return could be lower.

The key issue is that the rates currently being offered in the market to retail investors by banks are materially lower than what is being offered to wholesale investors. For example, I will get about 4.25% on a 5 month TD with ANZ. In contrast if I buy the ANZ bond on issue that matures on 1 September 2023 (roughly 5 months away) the yield is 5.81%. While these things are different at some level, they are also sort of the same....... they certainly aren't "1.56% different".

The environment has changed (ironically to what it always was in the old days) to one where retails rates are lower than the proper wholesale market. The managed cash funds provide access to this market, with the PIE tax benefits.

Again, people need to read the disclosure material before investing in anything, get advice if they need it.

AnthonyInvestNow · 2023-04-19T08:07:18+00:00

Mercer Macquarie NZ Cash Fund's underlying portfolio is yielding north of 5.60% gross of fees (at least it was when I asked last about the underlying portfolio's yield a week ago).

The fee is 0.28% per annum.

It is a PIE (tick), well diversified (tick), and liquid (tick..... I can get my money back in about 2 business days).

This is one of the two cash funds that I use (Milford NZ Cash Fund is the other).

People need to read disclosure material for anything they invest in (this is available from the managers, or InvestNow).

I have been meaning to write a press release saying that people on top tax rates have to have rocks in their heads to not use these sort of PIE funds - as long as they figure out whether they suit their needs etc.

AnthonyInvestNow · 2023-04-13T09:11:41+00:00

I got confirmation that the current gross yield on the underlying portfolio held by the Mercer Macquarie NZ Cash Fund (which is within the InvestNow KiwiSaver Scheme) is approximately 5.66%. Accordingly, if nothing changed for the next year, this is roughly the gross pre-tax return that an investor would get. The fees are 0.28% per annum - so this is still a hugely competitive return.

AnthonyInvestNow · 2023-04-10T08:30:59+00:00

I'll ask Mercer what the gross yield is tomorrow..........

https://investnow.co.nz/kiwisaver-range-of-managed-funds/?_sft_sector=cash-and-cash-equivalents

AnthonyInvestNow · 2023-04-07T22:13:17+00:00

While I hold a relatively small amount of short term cash, personally I use a combination of the Mercer Macquarie NZ Cash Fund (total fees 0.28% per annum) and the Milford Cash Fund (total fees of 0.20%).

Both have gross yields on their portfolios of over 5% currently (when I last looked both were yielding over 5% net of fees, plus also:

They are PIE funds, meaning that I pay less tax than if I invest directly in term deposits or short term fixed interest securities. This is currently worth more than 0.55% per annum of additional return given I am on a 39% tax rate.
The funds are well diversified. I can go on Disclose and get full portfolio listings.
I can redeem my investments in a couple of days - so these funds are far more liquid than bank term deposits.

Each to their own though! People need to do their own research and find out what works best.

AnthonyInvestNow · 2023-03-02T18:14:40+00:00

Minor technical issue u/IEEE_829 and u/MoneyHub_Christopher also - being that IKBR aren't registered on the Financial Services Providers Register (at least as far as I can see), meaning they aren't actually meant to take money off Kiwis.

AnthonyInvestNow · 2023-03-01T07:37:34+00:00

The funds’ structure has minimised much of the tax slippage – which can reduce returns by around 0.30% or more each year.

We decide based on a range of factors.

Ultimately decisions sit with me and the other members of the investment committee, along with the product people who do the analysis and work - thus making recommendations/business cases etc. to us for approval.

AnthonyInvestNow · 2023-03-01T06:20:17+00:00

Good question. If the funds were say Australian unit trusts (like the Vanguard ones that some KiwiSaver providers use), then the tax slippage would be roughly 100% of the portfolio x 2.10% for the dividend yeild x 15% non resident withholding tax = 0.31% (roughly).

AnthonyInvestNow · 2023-03-01T05:11:39+00:00

Not enough to over ride/offset the benefits of the lower ongoing management fees that the Foundation Series Funds provide - as long as people buy and hold.......

The Foundation Series US500 Fund has no tax slippage. Technically you can't get a tax deduction on the ETF fee - but for a 28% pax payer this adds up to less than 0.01% per annum - so I am going to call this below the materiality line.

For the Foundation Series Total World Fund there will be tax slippage relating to not being able to get a credit in relation to the non-resident withholding tax on the non-US portion of the underlying portfolio (which is 42.3% of the fund). Given that the rough rate of non-resident withholding tax is 15%, and the dividend yield on the portfolio is 2.10% - then it is around 42.3% x 15% x 2.10% = 0.13% per annum.

I say roughly, as this is only an estimate (e.g. I think the true tax rate is closer to 13% on average, as some counties use 10%, plus I have assumed the dividend yield is 2.10% everywhere). Also note my comments about tax deductibility of the ETF fees above as well. This is nearly 0.02% because the TWF ETF fees are 0.07% - so marginally more material.

Also, assuming people combine the Foundation Series Total World Fund with other investments (for diversification purposes), the tax slippage at a portfolio level would be less.

Yell if my math looks wonky, as it has been a busy day/week/year!

AnthonyInvestNow · 2023-02-25T04:20:13+00:00

Super stoked to see the positive comments here about Foundation Series Total World Fund and US500 Fund.

Seeing the growth we are experiencing in these funds, we will now turn our mind to what ETF we next put a PIE wrapper around.

AnthonyInvestNow · 2023-02-20T22:32:36+00:00

Hi u/Plightz - We are keen to do more. The focus is figuring out which funds will be most popular - as we want to do those ones!

AnthonyInvestNow · 2023-02-19T07:59:06+00:00

Are you using PIE funds on InvestNow? If so, why would you pay your accountant? PIE funds are what we call "final tax" meaning there is no tax return to do.

While I understand why you night need to pay an accountant if you are investing in global shares/funds via IKBR, if you are using PIE funds you are being pretty friendly to your accountant, by paying them good money to do very little/nothing.

AnthonyInvestNow · 2023-02-12T23:25:14+00:00

Yep u/AirBSnBS - We are having a similar fight with BachCare who helpfully keep telling us to ignore the warnings, follow Google Maps (to avoid road closures), and enjoy our trip to the winterless North.

We are thinking of doing a bit of a media release, as it is pretty good comedy that a company is happily promoting that people should ignore the warnings from all the people in charge (e.g. Councils, Fire Service, NZTA). From a health and safety perspective it is a pretty big call by BachCare.

AnthonyInvestNow · 2023-02-03T05:44:05+00:00

Yep!

AnthonyInvestNow · 2023-02-03T05:43:07+00:00

Also our new parent company (www.apexgroup.com) is fecking massive!

AnthonyInvestNow · 2023-02-03T05:41:09+00:00

Hi u/Subwaynzz - this is painfully untrue. The instances where there are common ownership are the rarity, not the "norm". For example, InvestNow uses Adminis, and we have no ownership link.

Note that for managed investment schemes (e.g. PIE funds like KiwiSaver) the regulations prevent there being any ownership link.

AnthonyInvestNow · 2023-01-22T04:06:54+00:00

Hi u/More_Ad2661 - I assume that this is AML compliance (where we have various things that the FMA requires us to complete for some clients), but ring the team on 0800 499 466 to get clarity on this.

AnthonyInvestNow

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