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Guide

FIF tax in New Zealand: two methods, and you may use the lower one

Sharesies, Hatch, Interactive Brokers — the moment your overseas shares pass a threshold, New Zealand stops asking what you sold and starts taxing what you held. Most people compute one method. There are two, and you are entitled to the smaller answer.

New Zealand does not tax the capital gain

For an ordinary investor there is generally no capital gains tax on shares. What there is instead, for overseas holdings, is the foreign investment fund regime — which taxes you on holding the investment, whether or not you sold anything and whether or not it paid you a cent.

The threshold decides whether it applies at all

Below a de minimis — NZ$50,000 of cost in overseas shares — an individual is generally outside the FIF rules and taxed only on dividends actually received. Above it, FIF income is calculated. The threshold is on cost, not current value, and it is measured across all your attributing interests together.

A proposal to raise this figure has been discussed publicly. Until it is enacted the threshold is NZ$50,000, and any page telling you otherwise is quoting an announcement rather than the law.

Fair dividend rate, or comparative value — whichever is lower

Fair dividend rate (FDR) is 5% of the opening market value of your foreign shares at the start of the income year, regardless of actual income received. A flat 5%, whatever happened.

Comparative value (CV) is what actually happened: (closing value + sales + dividends) − (opening value + purchases).

An individual may use the lower of the two. In a flat or falling year CV is usually smaller — and in a falling year it can be negative, in which case your FIF income is nil. Nil, not a deduction: a comparative value loss does not offset your other income. In a strong year FDR's flat 5% is usually the lower figure and caps what you pay on a large gain.

Computing both and taking the smaller is arithmetic no broker does and most spreadsheets skip — which means paying tax on the higher of two numbers you were entitled to choose between.

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