Anybody that derives income from a managed investment portfolio or has foreign investments is most likely subject to FIF rules, and these rules can be confusing.
FIF rules apply to certain overseas investments such as shares in foreign companies, overseas unit trusts, foreign superannuation schemes and some foreign insurance policies.
The FIF rules apply when a New Zealand tax resident holds qualifying overseas investments with a total combined cost exceeding NZ$50,000 at any time during the tax year (increased to $100,000 effective 1 April 2026.) Note that most Australian listed companies are exempt and do not qualify as a FIF. If an investor’s FIFs remain below these thresholds, they will only be taxed on actual dividends received.
The purpose of the FIF regime is to ensure that income from offshore investments is taxed fairly – even if the income has not been received in cash. The FIF rules have been designed to ensure that tax residents are taxed on their worldwide income and reduce opportunities for tax avoidance. FIF income is often referred to as attributed income, as the investor may be required to pay tax on a deemed or estimated return, even if no cash has been received.
Once the FIF rules apply, investors must calculate their taxable income using one of several prescribed methods. The most common is the Fair Dividend rate, which is calculated at 5% of the opening market value of the investment, regardless of actual performance. The other common method is Comparative Value, which calculates the change in investment value over the year plus dividends received. There are other income calculation methods that apply to more specific circumstances. Using calculation methods that provide greater accuracy is more complex.
FIF rules introduce timing differences because income is recognised annually and not on realization, and generally require careful tracking of market values and foreign exchange movements.
Annual investment portfolio tax summaries from investment managers have improved markedly over the years and provide the information to be included in your tax return. If you have any questions about FIFs, please reach out to your Client Manager.
