Weekend Money: Taxwise by John Bassett

For some years I have held direct investments in companies listed on the New York Stock Exchange.

Contrary to predictions in some quarters, as an amateur investor I have been able to select stocks that have generated respectable returns for me. My reading of the market suggests that I should scale down these investments. I think it is time to sell some shares and move the proceeds of sale into more defensive investments.

I would appreciate any comments you are able to make on the possible US tax position should I decide to sell.
E.S, Auckland.

No doubt you will have experienced US withholding tax on the dividends that have flowed to you.

However, the 15 per cent withholding tax is not applicable to gains made on the sale of assets such as shares.

Whether taxation will apply to the gains turns on the US tax rules imposing income tax and capital gains tax.

I assume your position to be that of a New Zealand investor who has arranged for the purchase of shares in various US corporations. Your place of residence has been New Zealand, not the US.

My understanding of the US tax rules is that US tax does not apply to gains sourced in that country which are made by a person or company not resident in that country.

That rule applies to both US income tax and capital gains tax.

This rule is subject to one qualification. This is if the non-resident investor conducts a trade or business in the US.

In that event, the exclusion from the US taxes does not apply. I expect that this qualification will not apply in your case.

I also think that you will not be subject to state income taxes.

These imposts will not have application because you have resided out of each state jurisdiction.

The conclusion I reach is that you should have no exposure to US taxes.

* John Bassett is with the law firm Bell Gully.