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What Expenses Are Tax Deductible When Purchasing Shares?

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Contributor:
Mary Holm
Mary Holm

Question:

I asked the IRD about purchasing shares and what expenses are deductible.

Their response was, "If you buy shares for the purpose of receiving dividend income, the cost of newspapers/ investment reports to select which shares to buy is non-deductible. This is because there is insufficient nexus between the cost of the newspaper and the income-earning process to allow a deduction."

But a couple of authors of books about tax suggest any items that are sought for the sole purpose of obtaining share dividend income are chargeable against tax.

Who is correct?

Answer:

Mary Holm: A curly one. I note that you are an accountant, albeit perhaps not a tax specialist. If you can't decipher what you read, what hope is there for most others?

Still, we'll try to shed some light on this.

The difference in the info may lie in the fact that the IRD is writing about money you've spent "to select which shares to buy."

But, says Thomas Pippos of Deloitte, "if the costs are to also monitor and manage dividends, then they are deductible to some extent."

For mum and dad shareholders who hold only New Zealand or Grey List shares, the following are generally not deductible, says Pippos: brokerage, the purchase price of the shares, and "costs incurred in establishing a portfolio," including getting initial advice. However, the costs of monitoring the portfolio are deductible.

The costs of investment reports may have to be apportioned between the establishment of your portfolio (non-deductible) and the monitoring of it (deductible).

What about the newspaper you are reading now? "Theoretically you may be able to assert that part of the cost is attributable to monitoring your investments," says Pippos. "But you also read the news."

You can come up with a reasonable apportionment, but if it went to court it would be up to you to convince the judge it was reasonable.

The same would apply to your internet expenses, for example, if you use the net to monitor your investments.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.  

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