@janielw3 No problem! No, the IRD does not calculate this for you. The onus is on the taxpayer to return the correct income. Investment providers only share the actual income (dividends, etc.) with the IRD, not investment values.
@andrewn Hmm, so, very hypothetically, if I had 30k of offshore investments that somehow skyrocketed to 60k value, and I wasn't paying attention, I could have an unexpected tax bill if the IRD took a closer look?
And if this has been the case for a few years, then they might get really mad at me for not declaring and paying tax on said investments? To go to the absolute laymanest terms, would that be right?
@janielw3 I am assuming the 30K is the cost? Then the De Minimis exemption would apply, and you don't need to make a FIF calculation. If the cost was over $50K, yes that is a very likely scenario if the IRD were to find out
@andrewn Right, so it calculates on input (cost, as you call it, being the correct term, understood)
Cool, thank you very much for explaining this! I play with baby amounts of money so it's never been something I've had to worry about, bit I've always been curious as to why people seem to regard FIF as the devil. This has put it into perspective, thank you!
@janielw3 The determination of whether you need to make a FIF calculation is based on Cost. The market value is used in the actual income calculations under the FDR & CV Methods.
With the FIF rules you can end up paying more tax than actual cash income received.
@janielw3 I would presume that they would calculate it as if the taxpayer had calculated it themselves, I.e using the lowest value. Though you don't want to have the IRD doing it for you as there will be tax shortfall penalties and use of money interest applied to the tax payable.
@andrewn I don't understand any of this. But let's say I had put $10,000 into overseas stocks that is now worth $100,000k and i pull it out. What tax would I be paying and when?
@dak You would pay "normal" tax on whatever dividends were earned just like any other income you earn. If you were a trader you would also pay "capital gains" tax on the $90,000 profit. If you are not a trader then there is no tax on the $90k profit. You would not be subject to FIF tax as your overseas investment only cost $10k and so is below the $50k limit where FIF kicks in. That of course assumes you do not have other overseas investments that cost more than $40k which with this $10k put you over the $50k exemption limit.
@nunuzana Awesome thanks for clearing that up for me. Only overseas investment and not a trader so normal tax it is. Sucks to have to pay the tax man for no effort on their part though haha. So effectively I cash out. Retain my original investment at no tax? of $10k and pay 33% on the 90k if I have that correct? So walk away with $70,300
@dak Jumping in to say that you've misunderstood. You would not pay a tax on the capital gain and no tax on FIF as the de-minimis exemption applies. In this scenario you would get the full $100k.
However, you would have had to pay tax at your marginal rate on any dividends that you received.
@nunuzana what will happen with the de-minimis cost after you pull out your 100k assuming you are not a trader? Will it stay at 10k, or revert back to 0? I mean if I invest the 40k from the profit, will I now need to pay for the fif tax or not?
