What is the Proposed FIF Revenue Account Method?

The Foreign Investment Fund rules target NZ resident investors with offshore investment holdings, where their interest is below 10% of that entity. It calculates a taxable income for those holdings even when the investor does not receive a dividend or other distribution in that year.

The proposed Revenue Account Method is calculated as follows:

Dividends received + 70% of realised capital gains.

70% of any realised capital loss would be offset against Revenue Account income in the same or a future year. There may be an exit tax if the person ceases to be a NZ tax resident, but the details have not yet been published. You can find an example calculation on the IRD factsheet[i].

This proposed method differs from the other methods in that it doesn’t tax unrealised gains. If the taxpayer didn’t sell their foreign investments, they would only pay tax on dividends. This would be an optional method. Taxpayers could choose to use an existing calculation method if they wished (see below).

Who the Proposed Revenue Account Method Applies To

The proposed Revenue Account method would apply from 1 April 2025 to new or returning migrants who became fully tax resident (at the end of their transitional tax resident exemption period). The transitional tax resident exemption period of four years applies to new migrants and returning tax residents who were not tax resident in the 10 years before returning. It can also be used by trusts if the principal settlor was able to use the method.

For most people, the proposed Revenue Account method only applies to FIF investments in unlisted entities they acquired before becoming NZ resident. But the proposed Revenue Account method can be applied to all FIF investment for those taxpayers subject to tax on a citizenship basis.

Current Foreign Investment Fund Rules

If the FIF exemptions do not apply, you may use the lower of Fair Dividend Rate (FDR) or Comparative Value (CV) if you are an individual or a trust. Companies must use FDR except in some circumstances. If market value is not readily available, you can use the Cost method (CM). You cannot claim losses using FDR, CV or CM, except for Forced CV investments. There are two other methods which are rarely used: Deemed Rate of Return (DRR) method and Attirbutable FIF Income method, so we have not explained them here.

This is a brief summary. You can download a detailed IRD guide[ii] for more details.

FIF Exemptions

The following foreign investments are exempt from the FIF Rules. You need to include dividend income in your tax return.

FIF investments costing less than NZ$50,000 – this de minimis exemption applies only to individuals, not companies or trusts.

ASX-listed Australian companies – Affected companies are on the official ASX list[iii], is Australian resident, maintains a franking account and offers stocks that are not stapled.

Foreign superannuation schemes – that are not “FIF Superannuation interests” (acquired when NZ tax resident, or prior to 1 April 2014 when non-resident). Tax is payable when a lumpsum or pension is received, or if the interest is transferred to a NZ or Australian superannuation scheme.

Income interests of more than 10% in a controlled foreign company (CFC) - In active businesses you are not taxed on controlled foreign company income or losses. You may be taxed on providing some personal services. In non-active businesses you're taxed on your proportional share of passive income and losses.

Fair Dividend Rate (FDR) method

FDR is calculated as 5% of the opening market value + quick sale adjustments.

Quick sale adjustment is calculated when a taxpayer buys and sells the same FIF in the same income year and makes a gain. The adjustment is the lower of the actual gain and the peak holding amount, which is 5% of the difference between the maximum holding compared to the start or end of the year (which ever is higher) times the average cost.

Comparative Value (CV) method

CV is calculated as closing market value + gains – (opening market value + costs).

Gains include dividends received during the year. Costs include brokerage fees.

Cost method (CM)

CM is calculated as 5% of the opening value plus quick sale adjustment.

The opening value is zero in the year you acquire the FIF. The following year the opening value is arrived at by independent valuation or net asset value in public audited financial statements. The year after that, the previous year’s FIF income is added to the opening value. The quick sale adjustment is the same as the peak holding method used for FDR.

The Proposed Revenue Account Method is not yet Law

The proposal still must pass through several stages before becoming Law. It will be included in a tax Bill mid-year 2025. There will be a select committee process including public submissions. The proposal may go through several changes before it becomes Law.

If the proposal is passed, it will be a far simpler method to adopt than others, and kinder to investors as it doesn’t tax unrealised gains.

-         Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

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An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.

  [i] https://www.taxpolicy.ird.govt.nz/-/media/project/ir/tp/publications/2025/fs-fif-fund-rule-changes.pdf

[ii] https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir400---ir499/ir461/ir461-2024.pdf

[iii] https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/foreign-investment-funds-fifs/foreign-investment-fund-rules-exemptions/foreign-investment-fund-australian-listed-share-exemption-tool