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Not all offshore funds the same

A tax expert is warning investors, advisers and fund managers to be careful about using offshore funds for tax advantages.

Thursday, June 7th 2001, 6:56AM

by Philip Macalister

A tax expert is warning investors and fund managers that they need to be careful when selecting which offshore-based funds to use for tax savings.

Currently several types of funds domiciled in the United Kingdom and Australia are in vogue because they don't have to pay capital gains tax on gains.

The biggest group of these funds are UK-based unit trusts and open-ended investment companies which are promoted in New Zealand by at least six managers.

Deloitte Touche Tohmatsu tax partner Joanne McCrae instead of making a decision to use an offshore fund solely for tax purposes advisers, investors and managers need to consider how the fund is invested as that impacts on its tax status.

She says some funds don't enjoy as many advantages as others.

The distinctions can be quite complicated, but as a general rule UK growth funds have greater tax advantages than income funds, and Australian funds which have Australian based earnings are less advantageous than ones which have offshore earnings.

People also need to be aware there is a "reasonable risk" that the tax advantages these funds have could disappear through law changes.

Although warning investors about the risks, McCrae is also surprised that more managers haven't exploited the advantages of Australian based funds.

"(They) are not being exploited as much as they're possibly able to be," she told a recent superannuation conference in Wellington.

The main advantage of these funds is that they can make distributions through non-taxable bonus issues which provide a tax advantage for New Zealand investors.

Currently two managers in New Zealand, Frank Russell and New Zealand Funds Management have products which take advantage of the Australian rules.

The Frank Russell funds are promoted by ANZ Funds Management, while NZ Funds are responsible for the First Step mortgage fund sold through Money Managers.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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ANZ 5.59 4.75 4.79 4.99
ANZ Special - 4.25 4.29 -
ASB Bank 5.55 4.69 4.75 4.89
ASB Bank Special - 4.25 4.29 4.34
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BankDirect Special - 4.25 4.29 4.34
BNZ - Mortgage One 6.25 - - -
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BNZ - Special - 4.29 4.29 4.49
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Credit Union Baywide 5.95 4.99 4.99 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
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First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heretaunga Building Society 5.60 4.85 4.90 -
Housing NZ Corp 5.55 4.69 4.75 4.89
HSBC Premier 5.75 4.19 4.19 4.49
HSBC Premier LVR > 80% - - - -
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HSBC Special - - 3.79 -
ICBC 5.60 4.39 4.69 4.99
Kiwibank 5.25 4.70 4.75 4.29
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Liberty 5.69 - - -
Napier Building Society 6.50 5.80 6.70 -
Nelson Building Society 6.10 4.85 4.99 -
NZ Home Loans 5.45 4.69 4.75 4.75
NZ Home Loans - Specials - - - -
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NZ Home Loans - Specials - 4.19 4.19 4.29
Perpetual Trust 7.70 - - -
Resimac 5.19 4.94 4.90 4.91
SBS Bank 5.54 4.75 4.89 4.99
SBS Bank Special - 4.25 4.15 4.55
Sovereign 5.65 4.69 4.75 4.89
Sovereign Special - 4.25 4.29 4.34
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TSB Special - 4.25 4.19 4.59
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Westpac 5.65 4.79 4.85 4.99
Westpac - Capped rates - 5.15 5.25 -
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Median 5.65 4.69 4.75 4.89

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