KEY POINTS:
With three days before the start of the Government's new overseas share tax, stockbrokers' and accountants' telephones are running hot with calls from confused clients.
Some are selling up and others are "bed and breakfasting" their shares, meaning they are selling up before the end of the tax
year and rebuying on or after April 1.
The Fair Dividend Rate (FDR) regime will see shares and funds outside Australasia being taxed on a maximum of 5 per cent of the opening market value of an overseas share portfolio at the beginning of each year.
Head of advisory at stockbroker ASB Securities, Stephen Wright, said that a number of clients had been selling down their overseas holdings so that they owned less than the $50,000 threshold for individuals or $100,000 for couples, after which FDR kicks in.
He said while investors accepted the need for overseas share ownership, they wanted to avoid the extra tax.
Martin Poulsen, head of securities at First NZ Capital, said the most noticeable effect of the changes this weekend had been that the stockbrokers' phones were busy with calls from clients who didn't fully understand the new tax.
They were also trying to learn more about Kiwisaver and the new Portfolio Investment Entities, which both come into effect later in the year.
ABN Amro's head of research, Cameron Watson, said his company was telling clients not to panic.
"We are getting the message through that it is not a heck of a lot of extra tax to pay."
The advantage of bed and breakfasting shares is that investors effectively buy their portfolio on April 1, and as a result will not have to pay the FDR for the previous year's growth.
The dealing costs, however, will negate the saving for some investors.
Watson said all investors should be taking a snapshot of their holdings on April 1, although those with a service provider such as a stockbroker or financial planner would have it done for them.
The most confusing issue in the FDR regime for private shareholders lies with Australian equities.
Only 445 of the companies listed on the Australian All Ordinaries index are exempt from FDR and that number will change over time as some companies fall outside the existing rules.
Changes
* Shares and funds outside Australasia will be taxed up to 5 per cent of the value of the portfolio at the beginning of the year.
* Holdings of less than $50,000 for individuals and $100,000 for couples will be exempt.