Income tax Dates
Find out your income tax responsibilities if you’re an individual New Zealand tax resident who invests in shares.
When the foreign investment fund rules apply
If you have foreign shares that cost you more than NZ$50,000 (in total) to buy, read our guidance on the foreign investment fund rules to work out what rules apply to you for those shares.
Foreign investment funds (FIFs)
Reporting your overseas income
When the general tax rules apply
The general income tax rules apply if you hold shares in either:
- a New Zealand company
- certain Australian listed companies
- foreign shares that cost you less than NZ$50,000 (in total) to buy.
Foreign Investment Fund Australian listed share exemption tool
The foreign investment fund rules will not apply to these shares.
Dividend income
Dividends companies pay are taxable income — this includes dividends from foreign companies.
Dividends from New Zealand companies
When a New Zealand company pays a dividend, they’ll generally withhold tax and pay it to us on your behalf. The dividend income and tax credits will be added in to your income tax assessment or individual income return IR3. You will need to check the amounts are correct.
Dividends from foreign companies
When you get a dividend from a foreign company, you need to pay tax in New Zealand. You will need to check if tax has been withheld and paid in New Zealand. If the amounts have not been added in to your individual income tax return IR3, you will need to self-report this information.
If you receive foreign dividends, you should file an Overseas income summary - IR1261 and claim foreign tax credits. For information on how to do this refer to:
Reporting your overseas income
Overseas currency - conversion to NZ dollars
Income from taxable share sales
There are tax rules which look at if an amount you receive is income for tax purposes. These rules may apply to the amounts you receive from selling shares.
Amounts that you receive from selling shares are taxable when you:
- bought the shares for the dominant or main purpose of selling them
- have a share dealing business
- have the shares as part of a profit-making scheme.
The share sales may be income under 1 or all of these, but the amount you get from the sale is only taxed once.
Income under ordinary tax rules
The amount that is taxable is the sale price less the cost of the shares.
Shares you acquired for the purpose of disposal
An amount you receive from selling shares is income if you got the shares for the dominant or main purpose of sale.
Common reasons for buying shares include getting dividend income, long-term investment and expecting gains from the growth in a share price.
You may need to prove to us whether or not you got the shares for the purpose of selling. This means you may need to provide records from when you bought the shares including:
- notes about why you bought the shares at the times, such as emails
- information you relied on when you decided to buy shares, for example research you did
- any investment plan or advice from financial advisors
- lending records if you borrowed funds to buy the shares
- any past association between you and the company
- any separation between shares held to sell and shares you’re holding for other reasons such as receiving dividends.
Recording your reasons for sales can also help explain if sales are consistent with your stated purpose for buying the shares.
What you state the main purpose is must then be supported by:
- the nature of the share, for example, if the company is expected to pay dividends
- the length of time you hold the shares
- circumstances of the purchase, use and sale of shares
- the number of similar transactions.
You do not have to be in business or intend to make a profit. One-off sales are still taxable if you bought the shares mainly to sell.
Business of share dealing
If you buy and sell shares on a large scale investing significant time and money, you may be in the business of share dealing.
The combination of some of these things may indicate you are in the business of share dealing:
- a high scale of regular activity (buying and selling).
- an intention to profit from share sales.
- regular or continuous monitoring of the share portfolio.
- a system with which shares are bought and sold.
- frequent sales which are part of your normal operations in the course of
making profits.
- large amounts are invested.
- a significant amount of time is spent in the activity.
When you have a profit-making scheme
Amounts earned from carrying on or carrying out a profit-making scheme of dealing in shares is income.
A scheme is a course of action, a series of steps, or an enterprise directed to a result. The words suggest activities that are co-ordinated by plan or purpose. The plan or purpose must be clear and have some agreement of ideas but does not need to be precise - a generalised plan is all that is needed.
Also, any intent of making a profit from the share dealing scheme must be the dominant or main intent.
If it applies, any profits are only taxable from the time you start the scheme.
Claiming expenses
If you have shares you got for the purpose of sale or as part of a share dealing business, expenses in getting, holding and selling the shares are deductible. You can claim the cost of the shares (including transaction fees) in the income year you sold the shares in. Generally, you can also claim any advisory fees and any interest on borrowed funds as an expense.
Where shares are not bought for sale or as part of a business or share trading activity, but you do reasonably expect to get dividends, you can claim interest on borrowed funds and potentially some financial planning fees.
You will need to be able to provide evidence to support the amount of interest claimed.
Where you do not buy shares for sale or as part of a business or share trading activity, and you do not reasonably expect dividends, you cannot deduct expenses.
Losses when you sell shares
Where shares are not bought for sale or as part of a business or share trading activity, but rather to get dividends or as a long term investment, you cannot claim the loss.
If you have shares which are taxable on sale under any of the general tax rules but are sold for less than what they cost, you can claim that loss in your IR3 tax return.
The amount of the loss is the sale price less deductible expenses such as the cost of the shares.
The loss must have been realised ( you must have sold the shares). If the shares have gone down in value but you still own them you cannot claim the loss.
Where you have claimed a loss for share sales, we may ask you for information showing that share sales are taxable under the income tax rules above.
Examples
When you buy shares for the main purpose of selling them, you need to pay tax on the amount you get from the sale.
Malia regularly used an online investment platform to buy and sell shares in Australian and New Zealand companies. She did not consider dividends and chose shares in companies that reinvested profits. Malia was prepared to take risks and searched for companies on the platform by applying a ‘highest price change’ filter. Malia would sell shares when she considered the price was high.
The type of shares, the length of time held, and the pattern of activity indicate that Malia’s main purpose for buying the shares was to sell them. Malia did not have any evidence to show that this was not her main purpose, and she had no other explanations for the sales.
The facts indicate that Malia bought the shares for the main purpose of selling them.
The amount Malia got from selling the shares is taxable.
When you buy shares for a main purpose that is not selling them, you do not need to pay tax on the amount you get from sale. You need to keep records at the time you buy the shares to show this.
Li used an online investment platform to invest in shares. She wanted to invest in ethical companies to support those companies, but also still provide a good investment.
She did some research before buying any shares, focusing on the companies’ ethical and sustainability policies as well as dividend history and the growth in share prices over the last few years. Li keeps records of this research.
At the time of purchase, Li is not certain about how long she will hold the shares for.
2 years later, she decides to sell the shares and makes a profit.
While 2 years is not a long-term investment, Li had several purposes for buying the shares, including that she wanted to support an ethical and sustainable company, was seeking dividends and also growth in the share price. While sale was a possibility, her main purpose at the time she bought the shares was not to sell them. Li can show this through her research and her stated purpose is consistent with the type of shares that she bought.
The amount Li got from selling the shares is not taxable.
When you buy shares for a main purpose that is not selling them, you do not need to pay tax on the amount you get from sale. You need to keep records at the time you buy the shares to show this.
Aarav had a large share portfolio that he was holding for a long-term investment. Some shares paid dividends that Aarav re-invested, but most investments were in high growth shares. He wanted to build up his assets so he would have an inheritance he could pass on to his children and grandchildren, but he may also sell some investments in the future depending on his financial needs.
Aarav bought the shares with the main purpose of building up his investments that may, but would not necessarily, be sold. The possibility that shares will be sold does not mean he has a main purpose of disposal.
Any amounts Aarav gets from selling the shares in the future are not taxable
Sales of your shares are taxable if your main purpose was to sell them at the time you buy the shares. It does not matter if you change your mind.
In 2021, James started using an online investment platform. He was looking to earn extra money by selling shares for profit. After a few months he changed his mind and decided to hold on to the shares for a long-term investment.
2 years later, James had a change of circumstances and had to sell the shares. It’s James’ purpose at the time he bought the shares that decides if sales are taxable.
Because James bought the shares for the main purpose of selling them, the amount he got from the sale of the shares is taxable.
Sales of your shares are not taxable if your main purpose was not to sell them at the time you buy the shares. It does not matter if you change your mind and later sell them.
Aroha bought shares in a company because she was interested in the products the company made, and also thought the shares would be a good investment. Aroha discussed this with her financial advisor, and the advisor kept notes of the investment plan.
The following year the company’s policies changed, and Aroha did not support the direction the company was moving in. She decided to sell the shares and invest her money elsewhere.
Aroha’s purpose at the time she bought the shares decides if the share sales are taxable. Her investment plan, recorded reasons discussed with her investment advisor for the initial purchase, and reasons for the sale of these shares support that her main purpose for buying the shares was not sale.
Because Aroha did not buy the shares for the main purpose of selling them, the amount Aroha got from selling the shares is not taxable.
When you buy shares for the purpose of funding something, the sale of those shares will be taxable. Selling the shares is your main purpose at the time of purchase.
Phil had money in a bank account that paid a low interest rate and was looking to save for a house deposit. He discussed his situation with his bank and was told the amount of deposit he needs for a home loan.
Phil was concerned that high inflation and low interest rates would mean he would be worse off once he was ready to purchase a house. Phil decided to invest his money with an online investment platform in a combination of high growth and high dividend earning shares.
2 years later, the value of Phil’s investment was sufficient for a house deposit, and he sold all his shares. Phil’s main purpose for buying the shares was to increase the value of his house deposit. He could achieve that only by selling the shares.
Therefore, selling the shares is Phil’s main purpose.
The amount Phil got from selling the shares is taxable.
When you purchase shares for the main purpose of sale, a loss may be claimed if you sell the shares for less than you bought them. The shares must be sold to claim a loss.
Charlotte bought $1,000 of shares using an online investment platform. She bought the shares hoping to make a quick profit and kept records of this purpose.
However, the market turned, and the shares dropped in value to $800.
Charlotte sold the shares to limit the loss. Because she bought the shares for the main purpose of sale, the amount received of $800 is income. However, this is offset by the deduction she gets for the cost of the shares of $1000. Charlotte also paid transaction fees totalling of $20.
Charlotte had total income of $800 and total expenses of $1020 so made a $220 loss. She can claim this loss against her other income.
If Charlotte does not sell her shares she cannot claim a loss for the drop in value. A loss can only be claimed when the shares are sold.
Tax advice
You may know if an amount you receive from selling shares is income under 1 of the general rules. If you're unsure we recommend you speak to a tax professional.
Tax Technical advice
Read more on our Tax Technical website about tax rules that may apply to shares.
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