Just realized that the EXUS ETF I bought recently, is of the accumulating kind, i.e. even though I didn’t enjoy the economics of dividends accumulating in the fund NAV over the year, I would be taxed on the dividend income if I held the fund over the year end (as ICTAX takes 31 Dec as deemed ex date).
Found a solution already, EXU1 ETF is distributing for the same underlying and then I only get taxed on distributions that I actually receive.
In that context though, maybe a quick reminder to position accordingly for the year end. Other ideas that come to my mind is holding a direct property fund, if you’re currently hold an indirect fund. That’s purely a tax advantage- in this case of course, you run the risk of changing NAV premia in the meantime (if it’s roughly the same underlying).
Do you use a separate broker just for those trades? Because the tax lady may ask for complete trading statements. Did so to me last year, lucky had nothing to hide.
The only year-end thing for me is to write to wefin.dvs@estv.admin.ch about the missing exotic stocks I cannot find in their data. They usually add it in 24 hours.
I never held accumulating funds in the past, but also have started some this year.
I always asked that myself how the tax situation would look if you bought a ton of a fund just before year and. For example a fund that holds short term bonds.
Do you actually get taxed for the full year or only partially? Because the former is insane. Imagine you hold an accumulating t-bill etf that had 4% gains for the year. Get taxed on that, but you only made 0.4% as you held it for like a month.
So you would actively LOSE 1% with a ~35% marginal tax rate. Basically in practise the tax office robbing you of gains you never had here.
A separate account at IBKR now, but mostly by accident.[$] I’m tempted to only include the long only IBKR account (and my legacy Swissquote account) in the tax declaration, but might declare both IBKR accounts.
Decision is pending a chat with my investor friend whose dad was a Steuerkommissär (the same one as in this post in one of the “professional trader” topics).
You get taxed for the coupon payments you receive in the given tax year, regardless of when you bought the corresponding bond.
That’s why – if you want to invest in T-Bills (or other treasuries) you pick one with a very low coupon.
Your return on the treasury is essentially determined by the Fed on the short end of the curve.
Let’s assume you want to hold a treasury over the course of 12 months or so. It’s (tax wise, in Switzerland) not wise to buy a fresh 52 week T-Bill with a currently – let’s assume – 4% coupon (or whatever it is now). It’s better to buy a treasury that matures in 12 months with a very low coupon (e.g. issued in the ZIRP era) with 0.25% of 0.5% coupons. You’ll be able to buy the 0.5% treasury for about 96.5 cents on the dollar. You’ll get your coupon payments (of 0.5% on the nominal) but most of your gains will come from capital gain of the bond until its maturity.
$ Until Spring this year I held everything at IBKR in my one (and then only) IBKR account. Wanted to make sure that my wife can easily access funds and cash at IBKR in case I rode my bicycle into the river on my Summer Rhine tour).
When I asked IBKR how to best get her access, they recommended to create a new login account for her, a new investment account in both of our names, and then transfer the funds from my old investment account to the new joint investment account.
When creating her login account I answered truthfully about her investment background (essentially none) which – unbeknowst to me – led to the new joint investment account being limited to what was allowed only for my wife to trade and hold.
When transferring the securities from my old investment account to the new joint account, stuff like options wouldn’t be transferred since my wife’s investment background is to limited for her (even in the joint account) to hold let alone trade options …
So I’m now stuck with my short Puts in my old account (secured by treasuries) while all the long equity positions are in our joint account. Since the bond also counts towards wealth, I kind of feel obliged to declare it, but since the coupon is just 0.5% (deliberately!) I suppose I don’t care much on getting the withholding tax back on the coupon payments. Actually, I pay more tax by declaring the coupon payments than just the 15% IBKR collects for Uncle Sam.
You get taxed for the whole year on the date of financial year close for the fund. So yes if you have accumulative MMF and you bought just one day before dividend, you will be taxed on whole dividend income.
Indeed, that’s the worst case scenario (from a Swiss taxpayer perspective).
With an again assumed 4% coupon bond, a currently 4% FOMC rate, and yearly payout, the year leading up to ex day, you can buy the bond for about a dollar.[$] You’re left with a dollar and 4 cents at payout day and you will pay income taxes on ~4 cents.
Compare to a 0.5% coupon bond (again in a currently 4% FOMC regime) and yearly payout: you can buy the bond at a dollar a year before maturity and for about 103.5 cents on ex day. You’re left with a dollar and 4 cents at payout day but you’ll pay income taxes only on the 0.5 cent of the coupon you received.
The price for the 0.5% coupon bond in the year before maturity and ex day is updated daily according to the accrued interest it has under its belt (e.g. with six months until maturity, it will cost about 1.02 cents).
The fun part comes with the Fed changing rates (or even just market participants adjusting expectations of the Fed changing rates): bonds reprice within seconds? Milliseconds? Nanoseconds — unless the CME has a bad day. Like today.
$ Cheaper if your credit rating is lower than what the market attributes to the US. Theoretically higher than what the market attributes to the US. Rating agency ratings are involved, too, but I think ultimately the market determines premiums and discount to the FOMC rating.
The t-bills were more an example to illustrate the issue.
I was more thinking about alternative funds like managed futures, that also hold a lot of them and that‘s the only return part that is taxed, as the rest is capital gains.
For example I shifted my allocations around a lot last month. I have like 20% of my holdings now in a fund I bought in October. That fund mostly holds t-bills as collateral. So I will literally get the full tax hammer on that return, while only having actually gotten 3/12 of that gains.
Pretty whack to be honest…. Free money for the tax office.
Hm, can’t quite advise for your specific situation, but I would guestimate that the bond part of your holdings in that fund bought in October were priced coupon accrued as described above, so
You’ll be taxed on the interest actually paid out for the bonds held in that fund.
You’ll have paid for the bonds held in that fund according to the pricing model described above.
Since T-Bills have a maximum maturity of 52 weeks, your fund will likely have bought high coupon bonds (since the interest rates set by the FOMC have been high for the past 12 months) and thus you would be paying taxes on about 4% to 4.5% coupon payments.
Perhaps the fund also purchases other treasuries (not just T-Bills, but US treasuries originally issued with 10 years or even 30 years until maturity, but with much lower coupons and hence lower price on the dollar at purchase time). This would lower your income tax bill in Switzerland.
Of course, the issuer of the fund tunes what kind of bonds get bought. For an US investor, it might not matter what kind of bonds are bought – low or high coupon – since capital gains are taxed.
TBH, I don’t understand the managed futures alternative funds you mention, so take my comments with a grain of salt. I just commented on the general basic mechanics on bond trading and pricing.
I usually sweep all foreign bank accounts into a single account, so that I only need to reconcile one instead of having multiple balances to enter on my tax return.
It’s being reported by IB to the tax authorities anyway. CRS reporting includes:
in the case of any Custodial Account:
a) the total gross amount of interest, the total gross amount of dividends, and the total
gross amount of other income generated with respect to the assets held in the account,
in each case paid or credited to the account (or with respect to the account) during the
calendar year or other appropriate reporting period; and
b) the total gross proceeds from the sale or redemption of Financial Assets paid or
credited to the account during the calendar year or other appropriate reporting period
with respect to which the Reporting Financial Institution acted as a custodian, broker,
nominee, or otherwise as an agent for the Account Holder;
There are no withholding taxes on US interest, including coupons from bonds and distributions from bond ETFs. But you have to declare the income, though.
I do declare them anyway for my long only portfolio but mainly because it’s convenient to have the correct dividends calculated in the online tax declaration (since it knows about ex dates for each position and calculates the right dividend sum automatically).
For my (now separate) account with the short Puts and the treasury I’ve in the past declared my treasury trades (if any) but have not declared any short Put trades. Last year I had no short positions at year end and did not declare any option trades made during the year.
The year before I had one short Put on my book at year but the taxman didn’t seem to mind even though I was audited for that year. After about half a year of studying my report the Steuerkommissär lady corrected some dividend payment sums (one of my REITs paid out capital gains in cash which I wrongfully declared as dividends) which resulted in me declaring a couple hundred CHF less in income …
This year I again aim for holding no options at year end. Better to let sleeping dogs lie.
I wonder whether they focus on frying the big fish only.
My son owns an IBKR portfolio now that he can’t be bothered with to declare in the tax report because, you know, it would take him 7 minutes instead of 5 minutes (of which 3 minutes are attributed to finding his credentials to log in and 1 minute to find the Lohnausweis in his inbox; the remaining minute is general loud complaining about having to pay taxes).
Taxman never reached out to him.
Thanks for pointing it out, you’re correct, of course. I somehow had in the back of my mind the 35% Verrechnungssteuer which is again something slightly different.
Anyway, I guess I’ll declare my US government note and the 40 CHF it paid in a coupon this year as additional income …
It is a potential factor in determining professional investor status. And what do they say if you make large gains on options trading, I certainly would ask “hey why do you have so much more wealth”.
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