Editing Openai/693cbf4b-55bc-8002-9fea-d4feddfd1f55 (section)

=== Assistant: Short answer: it’s wrong in several important ways. ===
Short answer: it’s wrong in several important ways. The arithmetic looks tidy, but the tax logic doesn’t line up with how NZ actually treats this.

I’ll go point-by-point and call out the real pitfalls.

==== 1. The 13% “yield” is not dividend income ====

QQQI’s distribution is not a clean 13% dividend.
It’s an options-overlay fund. Distributions are typically a mix of:
* ordinary income
* capital gains
* return of capital (ROC)

Only the US-taxable portion gets US withholding. ROC is not income in the US sense and reduces cost base instead.

So this assumption is already shaky:

: “13% yield = $130,000 of income”

It may be cash, but it is not necessarily taxable income, either in the US or NZ.

This matters a lot once FIF enters the picture.

==== 2. FIF FDR ignores the actual yield entirely ====

Under FIF – FDR method, NZ does not care what QQQI actually pays you.

Taxable income is mechanically:

: 5% × opening market value

So yes, on $1M:
* FIF income = $50,000
* At ~15% marginal rate → $7,500 NZ tax

So far, that part is correct if you are using FDR and not CV.

But here’s the key consequence:

: FIF tax is not a tax on dividends.
: It is a deemed return on the asset value.

Which leads directly to the next problem.

==== 3. US withholding tax does not offset FIF tax ====

This part is flatly incorrect:

: “since I have already paid $19,500 WHT, can it be used to offset the $7,500 FIF income tax”

No. It cannot.

Why:
* Foreign tax credits are only allowed where the foreign tax is paid on the same income that NZ is taxing
* Under FDR, NZ is taxing a deemed 5% return, not the dividend
* The US withholding tax is paid on actual distributions
* IRD treats these as different income bases

So:
* The $19,500 WHT is effectively stranded
* It cannot be credited against FIF tax
* You still pay the full $7,500 in NZ

This is one of the most common (and expensive) misunderstandings with high-yield offshore ETFs.

==== 4. Your “$103k after tax” result is internally inconsistent ====

Let’s line it up correctly.

===== Cash reality (approximate) =====
* Cash received: $130,000
* US WHT (only on taxable portion, not full amount): unknown, but assume ~$19,500 for argument
* Net cash in hand: ~$110,500

===== NZ tax reality =====
* FIF tax payable: $7,500
* No credit for WHT

===== True net cash =====
* $110,500 – $7,500 = ~$103,000

So your final number happens to land in the same place — but for the wrong reasons.

The danger is that:
* the WHT may be lower or higher than you think
* distributions can change
* ROC complicates future capital
* FIF tax stays fixed at 5% regardless

This is not a stable or tax-efficient structure.

==== 5. The really big structural problem (the one that bites later) ====

If QQQI has a bad year and:
* price falls 20%
* distributions drop

You still owe:

: 5% of opening value in tax

Even if:
* cash yield falls to 6%
* or distributions are suspended

That’s the FDR asymmetry risk.

At age 60, drawing income, this is dangerous.

==== 6. What people usually do instead (directionally) ====

Not prescribing, just pointing out reality:
* NZ PIE funds holding offshore assets
* Lower-yield / growth-tilted ETFs
* Blending NZ dividend income (no FIF) with offshore growth
* Managing taxable income deliberately to stay under thresholds

QQQI specifically is almost never optimal for NZ retirees once FIF is considered.

==== Bottom line ====

What’s wrong:
# Treating “yield” as income
# Assuming US WHT is creditable against FIF
# Ignoring ROC mechanics
# Ignoring FDR downside risk
# Accidentally getting the right answer for the wrong reasons

===== One clarifying question (important before going further) =====

Do you expect to:
* spend the full distribution, or
* reinvest part of it?

That answer changes whether this structure is merely inefficient or actively dangerous.