Forum Archive Index - August 1999

[marcus hinkley <marcus.ali@xtra.co.nz>]

Ross W. Jardine wrote:
> 
> Does anyone know of an online broker that accepts account from NZ to
> trade in US shares?
> 
> How easy is it to get set up with an account to trade both stocks and
> options in the US?
> 
> What are the tax implications of profits from trading in the US market
> when I bring them back into NZ?
> 
> Hoping to get some answers to these questions by Saturday morning.
> 
> A Yank in NZ

To a Yank in NZ.  

I can answer the question you pose regarding the tax implications of
profits from trading in the US market, although don't take it as
definitive, as I am not near the relevant texts this morning.

The first issue is where you are a tax resident.  The United States
taxes on citizenship, and therefore as long as you are a citizen the
States will require you to account to them (subject to some rules after
a long period of time which I will assume are not relevant here), and
double tax agreements.

NZ on the other hand taxes based upon tax residence.  You will be a tax
resident of NZ if:
        You have been in NZ for more than 183 days in any 12 month      period
(basically 6 months)or, even if you have been in the    country less, 
        You consider that your permanent place of abode is NZ: ie: the  place
you live, matters such as social ties, economic ties,   employment etc
will be taken into acount.

If you are tax resident of only US, the NZ Government will not tax you
at all, but you will be liable in the US.  If you are liable in both
countries, the double tax agreement (DTA) between the two countries is
relevant.

The DTA aims to prevent double tax.  In simple terms, the dta determines
which country has the primary right to tax income.  

The first step of the dta is to determine which country you will be a
resident of.  There are "tiebreaker tests" in the dta and you need to
check which country you will deemed to be resident of under these.  I do
not have the NZ/US dta handy so can't check this for you, but generally
I think it begins with where you consdier home is (Permanent place type
test).

On this basis I think that the dta may deem you to be an NZ resident
(assuming you were a NZ tax resident on the abov PPA test).  If so, NZ
will have the primary right to tax.

The next step is to go to the specific dta clause on business profits.
Business profits (which will include sharetrading) is generally the
country of residence's right, subject only if you have a permanent
establishment in the US.  For sharetrading that normally will not be the
case.

My conclusion therefore (tentative due to lack of materials at home, and
further facts) would be that if you are trading from NZ, and deemed an
NZ tax resident, US will forgoe any taxes based on the dta.

If you are not a tax resident of NZ yet, you may wish to consider using
a trust to hold your offshoreincome producing assets, as a trust pre
migration can avoid NZ tax for a considerable time on foreign sourced
income.   Without a trust, when you become  tax resident of NZ you will
be liable for NZ tax on your world wide income. 

As I say, take this as a guide at this stage. If you need assistance I
am a tax lawyer in Hamilton, email on mh@trusts.co.nz.

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