FIF Basics

What is FIF Tax? (The Simple Explanation)

Think of FIF (Foreign Investment Fund) tax as New Zealand's way of ensuring income earned from certain types of investments outside of NZ gets taxed fairly here at home. If you're an NZ tax resident investing overseas, these rules might apply to your investments, which are often called "attributing interests".

It's not necessarily a separate tax you pay, but rather rules that determine how income from these foreign investments is calculated and included in your overall taxable income for the year. Sometimes, this means calculating taxable income even if you haven't received cash dividends or sold anything, which is one reason the rules can seem confusing!

Why Does NZ Have FIF Rules? (The "Level Playing Field" Idea)

The main idea behind the FIF rules is to create a "level playing field". In New Zealand, gains from selling shares directly are often not taxed (capital gains), but income from NZ managed funds (like PIEs) is taxed.

If there were no FIF rules, people might choose to invest overseas purely to potentially avoid or delay paying NZ tax compared to investing locally. The FIF rules aim to reduce this tax advantage, ensuring income from offshore investments is treated similarly over time to income from comparable NZ-based investments.

Who Needs to Consider FIF?

• NZ Tax Residents: If you are considered a New Zealand tax resident, you need to be aware of the FIF rules. This includes individuals, trusts, and companies.

Exclusions:

• Transitional Residents: If you're a new migrant or returning Kiwi qualifying as a "transitional resident," you usually have a temporary exemption (typically 48 months) from FIF rules on most of your foreign investments held before you became resident.
• Small Investments (Under $50k Cost): A crucial point! If the total cost (what you paid, including brokerage) of all your attributing FIF interests is NZ$50,000 or less throughout the entire income year, you generally don't need to use the main FIF calculation methods. You usually just pay tax on actual dividends received like normal. We cover this $50k threshold in detail in the Thresholds & Exemptions section.

What Investments are Typically Covered by FIF Rules?

If exemptions don't apply, the FIF rules commonly cover investments like:

• Shares in Foreign Companies: Owning shares directly in companies not resident in NZ, for example Nvidia (NVDA) Apple (AAPL), Microsoft (MSFT), Tesla (TSLA) listed on US exchanges.
• Interests in Foreign Unit Trusts & ETFs: This includes many popular Exchange Traded Funds (ETFs) listed on overseas exchanges (like VOO, VTI, QQQ) as they are often structured as foreign companies or unit trusts.
• Certain Foreign Superannuation Schemes: Interests in some non-NZ retirement schemes, depending on when and how you acquired them. (Note: Withdrawals from most foreign schemes often have separate specific tax rules).
• Certain Foreign Life Insurance Policies: Policies offered or entered into outside NZ where the insurer is a FIF.

What Investments are NOT Usually Subject to FIF Rules?

The FIF rules generally don't apply to:

• Most ASX-Listed Australian Shares: Shares in Australian-resident companies listed on the ASX that meet specific criteria (like maintaining a franking account) are usually exempt. Learn more about the ASX exemption.
• Directly Owned Overseas Rental Property: Income from renting out a property you own overseas is taxed under different rules (rental income rules).
• Foreign Bank Accounts & Term Deposits: These are typically handled under the Financial Arrangements rules, not FIF.
• Controlled Foreign Companies (CFCs): If you (or a small group of NZ residents) have a significant controlling interest (usually 10% or more individually, or over 50% collectively) in a foreign company, different rules called the CFC rules apply instead.
• Being a Beneficiary of most Foreign Trusts: Simply being a beneficiary doesn't usually trigger FIF, though distributions received might be taxable.
• Loans: Making a loan to a foreign entity.