Online share investment platforms such as Sharesies, Stake and Hatch have made it easy to buy shares (or parts of them) for a no minimum starting amount. I've seen an increase in new share investors, thanks to the platforms, so thought it would be a timely reminder that share income may be subject to income tax.
There are 2 main types of income that can be generated from shares: Dividends, and Capital Gains (or losses).
Dividends are taxable income and need to be included in your income tax return. However, in most cases, tax has already been paid on your dividends by way of imputation credits and dividend withholding tax. So you may not have to pay more tax, but you still need to include them in your income tax return. Some dividend income information gets directly passed on to the IRD, you may have already noticed some dividend income and tax paid on this income in your MyIr (IRD login). But not always, so you need to check.
But we all know, when buying shares, it's all about them gains 💪💪💪, and it's here where you need to be careful.
If you are just investing in NZ shares with the intention of holding onto them for long term investment, you may not have to pay tax on your capital gains. NZ has no capital gains tax right? Not always.
If you buy shares with the intention of selling quickly to make a profit you may have to pay tax on these capital gains. Also, and a bit more difficult to prove, if you are in the business of share trading (buying and selling shares), you may also have to pay tax on the income generated from your trading. The rules around this are not always black and white so it's best to seek advice if you are unsure.
Furthermore if you are investing in foreign shares (eg. US shares) and the combined cost value of these shares reaches over $50,000 (NZD) for an individual or $100,000 (NZD) for a joint investment, at ANY time during the financial year, you may be subject to the Foreign Investment Funds (FIF) income tax rules. Without being too technical, these are essentially tax on a mix of capital and foreign exchange gains (or losses) rolled into one. There are some exclusions to these rules, for example some Australian shares listed on the Australian Stock Exchange (ASX).
If you are not familiar with these rules, I highly recommend you seek an accountant.