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What are FIF rules?

An interest in a foreign company and certain historic interests in foreign superannuation schemes/life insurance policies can require an income calculation based on the ‘Foreign Investment Fund’ rules (FIF).

When is the FIF rules tax charged?

These FIF rules apply when the cost or value of shares held in a foreign company exceeds $50,000 and the shareholding interest is less than 10% in the foreign company.  Where the interest held is above 10%, use of the ‘Controlled Foreign Company’ rules is required.

These rules exclude shares held in ASX listed Australian companies where income is calculated on any dividends received for those non-trading shares held on capital account.

Who FIF rules affect

Any person with shares held in a foreign jurisdiction in excess of NZ$50,000 and whose shareholding in the company is less than 10% of the total shares issued.

An example of FIF rules tax in use

You have invested NZ$60,000 in the US stock market and when filling in your annual tax return you must use the FIF rules to calculate the taxable income.

Calculating income using the FIF rules can be made using five different methods. Unless special circumstances require use of the alternative methods, generally income will be calculated using the lower of either the ‘Fair Dividend Rate’ (being 5% of the portfolio’s opening value plus any quick sale gains/losses) or ‘Comparative Value’ (being portfolio gains made throughout the year).

Ways people get FIF rules wrong

You assume that including dividend income from US companies is the only source of income taxable.

Recent FIF rules changes

1 July 2011 was the last major change to these rules.

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