Forum Archive Index - October 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi graham,

>
>my marginal tax rate is 39percent.
>the options are part of my salary package
>I do have to put money in, in order to exercise the options. I
>have a 3 year period over wich I can choose to exercise.
>
>
Ok, thanks for clearing that up.
>
> 
>The value is over 50000 dollars, and is counted as a foreign
>investment as far as I know.
>
>
Ok, sounds like a definite case of something that comes under the New 
Zealand IRD's foreign investment fund regieme.
>
> 
>For point 3, yes I was referring to the point in time when I 
>sell my shares.  
>Am I right in thinking I will be taxed 3 times -
>once for the taxable benefit
>again with the FIF tax
>and again on the realised capital gain (when I sell the shares)
>
>
Not sure what you mean by 'the taxable benefit'.  Perhaps you mean 
that the excise price is less than the market price on the day the 
options are to be granted to you.  In other words you are instantly 
'in the money' with your options.  If so, you have in effect received 
a financial benefit immediately which I guess, because it is linked 
to your salary might very well be taxable.

If, however, the exise price is greater than or equal to the current 
market price then I can't see how that would be taxable, as you 
haven't received anything at the time your options are granted.

The FIF tax rolls over each year.  By this I mean that any 'price 
history' of your options in previous years is wiped for the current 
years tax purposes.  For example, if all of the capital gain occurs 
in the first year and there is no more capital gain in any of the 
subsequent years, then you will pay FIF related tax only in the first 
year, not in subsequent years, nor when you eventually sell the 
options as shares either.  Your capital gain will be taxed once and 
once only.  So the answer to your question is no, you don't pay tax 
on your capital gain three times.

>
> 
> I have been made aware of another possible pitfall
> -People with these kinds of options have to make sure
> they have a residual income Tax liability at the end of the year of
> more than $2500, otherwise IRD an charge 'Use of money interest'
> 
>

Yes that might be a problem, but only if you *estimate* your current 
years income.  If you go through the mechancial process where your 
this years income is calculated from what you earned last year, then 
there should be no penalty. SNOOPY



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