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Tax change to boost listed funds

Tax changes due this year should give Smartshares’ listed ETFs a boost, its chief executive says.

Wednesday, February 26th 2020, 6:00AM 2 Comments

Once the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill is passed, probably in late March, Inland Revenue will be able to provide PIEs with the correct PIRs for their investors, rather than relying on individual investors to elect their correct PIR, as happened in the past.

There’ll also be an end-of-year square-up to make sure people only pay tax on their PIE income at the correct rate.

This should happen automatically without an investor needing to do anything.

That will be especially helpful for Smartshares, chief executive Hugh Stevens says, which currently operates its ETFs under different rules from those that apply to other PIEs.

Listed PIEs have to tax all investors at the top rate of 28% – and they can only rectify that by submitting a tax return and having that extra tax paid applied to other income earnt.

Stevens said the change would put listed ETFs on a level with multi-rate PIE funds.

Smartshares is launching new funds with the start of the next financial year, including a new index-tracking New Zealand equities fund which Stevens said will be the cheapest in the market.

It will track a pure market cap-weighted NZX 50. That would mean investors would get the benchmark return, reducing their risk so that they can allocate it elsewhere in their portfolios, he said.

“It’s making the benchmark investable.”

The current NZ Top 50 ETF gives exposure to the top 50 companies on the NZX 50 but with a 5% cap on the weight of each product.

Stevens said Smartshares wanted to offer simple, straightforward index-tracking funds at the best possible price for investors. It would take away the cost of direct investing, he said.

Other funds will cover Australian and global equities. The Australian fund will track the ASX 200.

Stevens said investors could use the funds as the basis of their portfolio and then add exposure to other funds to pursue investment strategies.

Tags: ETFs NZX PIE Smartshares tax

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Comments from our readers

On 26 February 2020 at 9:44 am Gordon Gecko said:
Congratulations to Hugh and the Smartshares team for their new initiative... a sub 10bps NZ Share Fund.
I can't wait to see the active managers response.
On 26 February 2020 at 2:50 pm Pragmatic said:
A great imitative from NZX. Looking forward to seeing a 3-5bps priced ETF vehicle that permits the investor to have an index-like return. At a forward PE of 34x, you wouldn't want to pay a premium for exposure to the NZX.

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