GameStop (and certain others) have been in the news lately due to the extreme volatility in their share price – a tug of war between long and short sellers.
Some New Zealanders have been getting in on the act. For many this may be their first foray into the share market. But have you thought about the tax consequences?
What’s to think about, you may well ask. New Zealand doesn’t have a capital gains tax.
As with most things involving tax, it’s not quite that simple.
For a start, GameStop is not a New Zealand company. This means the tax rules can differ to investing in, say, NZX-listed equities. You may, or may not, be aware of the Fair Dividend Rate (FDR) method, which taxes offshore shares on a deemed rate of return. If, as seems likely, you have bought and sold the shares during the same tax year, resulting in a “quick sale”, you will be taxed on the lower of 5% of your cost or your actual return. (You pay no tax if you make a quick sale loss). That’s one thing to consider.
Another is that individuals with a total offshore share portfolio costing less than NZ$50,000 are not taxed under the FDR method. Here, your reason for buying the shares will affect the tax treatment. If your intention was to make a profit by selling the shares in future, any gain you make is fully taxable. This will be a question of fact but, inevitably, informed by your actions. If you only held the shares for a short period of time, for example, this may suggest an intention or purpose of disposal.
So, if GameStop is your only offshore share investment and you invested less than $50,000 in total, and you got in and out quickly at the right time, you may have a tax bill you were not counting on. What if you timed it wrong and you’ve made a loss instead? To claim the tax loss, again, your intention will be relevant.
(And if investing in commodities, such as silver, or cryptocurrencies expect Inland Revenue to argue strongly that any gains you make are on “revenue account”, so taxable, as there is no other prospect of income or return).
What are the chances Inland Revenue will know what you’ve been up to?
Pretty high. Inland Revenue is getting more information, from more sources, more often, and using this to build a profile of your tax affairs. This includes from both New Zealand and offshore, under various exchange of information agreements. So, don’t be surprised if you get a letter next year politely asking if there is anything you would like to disclose.
The content of this article was also reported in the National Business Review.
Note: These comments are of a general nature and should not be relied upon as tax advice, as individual circumstances can differ.