FIF tax under the Fair Dividend Rate method on offshore shares.
Annual FIF tax (FDR method)
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Deemed income (5% of portfolio)
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Effective rate on portfolio
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Portfolio value
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De minimis threshold
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Your breakdown
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Why New Zealand taxes offshore investments differently
Without the FIF regime, New Zealanders could invest in low-dividend-paying offshore growth companies, accumulate unrealised gains indefinitely, and pay no tax until selling or receiving dividends. The FIF rules prevent this by imposing an annual tax on the deemed return from offshore investments above the NZD 50,000 threshold. The Fair Dividend Rate method is the simplest approach: multiply the opening value of your offshore portfolio by 5% to get the deemed income, then pay your marginal rate on that amount. It applies regardless of what actually happened in the portfolio that year.
Worked example at $80,000
With an offshore portfolio worth $80,000 at the start of the tax year and a marginal rate of 30%, the FDR deemed income is $80,000 times 5%, which is $4,000. Tax on that is $4,000 times 30%, which is $1,200 for the year. The effective FIF tax rate on the full portfolio is therefore 1.5%, which is modest compared to the tax on equivalent NZ income. However, if the portfolio actually returned less than 5%, the comparative value method could lower the bill. If the portfolio fell in value for the year, the CV method would produce a nil or negative FIF income, capping the FIF tax at zero.
Managing FIF compliance
FIF income is included in your personal tax return each year. You need to track the opening market value of each FIF interest in NZD as at 1 April. For shares quoted in foreign currencies, convert at the Reserve Bank of New Zealand exchange rate on that date. Keep records of all buy and sell transactions during the year, as these affect the opening value calculation for the following year. Some brokers and fund platforms provide FIF reports, but the quality varies and many investors use a tax accountant for the first year to establish a reliable process. IRD also publishes a list of Australian-exempt companies that fall outside the regime.
Frequently asked questions
When does the FIF regime apply?
The FIF regime applies when a New Zealand tax resident holds interests in foreign companies or managed funds and the total cost of all offshore investments exceeds NZD 50,000. Below that threshold, the de minimis exemption applies and you only pay tax on actual dividends received. Australian ASX-listed companies that are not stapled securities and are in the ASX300 are exempt from FIF under the Australian exemption.
What is the Fair Dividend Rate method?
FDR is the most commonly used FIF calculation method. It taxes 5% of the opening market value of your offshore portfolio each year at your marginal income tax rate, regardless of whether you actually received any dividends or realised any gains. The logic is that 5% is a deemed dividend return, providing simplicity and certainty. You can elect the comparative value (CV) method if the FDR amount exceeds your actual return for the year.
What is the comparative value method?
The comparative value method calculates the actual change in value of your FIF interests plus distributions received. If this amount is lower than the FDR calculation, you can elect CV to reduce your tax. The CV method requires accurate records of opening and closing values and any distributions, making it more complex to calculate but potentially advantageous in years when the portfolio falls in value or earns less than 5%.
Are KiwiSaver funds subject to FIF?
KiwiSaver funds are PIEs (Portfolio Investment Entities) and they pay FIF tax on their offshore holdings at the fund level. As a KiwiSaver member, you do not calculate FIF personally on the fund holdings. Instead you pay PIE tax at your Prescribed Investor Rate (PIR) on your KiwiSaver returns, which includes the FIF income already dealt with by the fund manager.