Revenue Account Method (RAM) - Proposed Legislation

What is the Revenue Account Method?

The Revenue Account Method (RAM) is a proposed new way to calculate FIF income specifically designed for recent migrants and returning New Zealanders. Unlike the current FDR method (which taxes 5% of opening value regardless of actual performance) or CV method (which taxes unrealised gains), the RAM would:

• Only tax gains when you actually sell the investment (realisation basis)
• Apply a 30% discount to capital gains
• Tax dividends in the year received (no discount)
• Allow capital losses to offset future gains (with 30% discount)

Who Would Be Eligible?

The proposed legislation creates two categories of eligible taxpayers:

1. Ordinary RAM Taxpayers

• Individuals who became NZ tax residents (not transitional residents) on or after 1 April 2024
• Must have been non-resident for at least 5 years before becoming NZ tax resident
• Family trusts where the principal settlor meets the above criteria

2. Extended RAM Taxpayers

These are ordinary RAM taxpayers who are also:

• Concurrently liable to tax in another country based on citizenship or right to work/live there
• That country must have a Double Tax Agreement with NZ
• Practically: This mainly applies to US citizens and green card holders

Which Investments Would Qualify?

For Ordinary RAM Taxpayers

RAM would apply to "RAM interests" - shares in foreign companies that:

• Were acquired before becoming a NZ tax resident, AND
• Meet ALL of these criteria:
  • Not listed on a stock exchange
  • No redemption facility for market value
  • Not an entity deriving 80%+ value from ineligible shares

OR shares acquired while NZ resident if they resulted from arrangements entered into before becoming NZ resident.

For Extended RAM Taxpayers (e.g., US Citizens)

ALL FIF interests would be eligible, regardless of:

• When acquired (before or after NZ residency)
• Nature of investment (listed/unlisted)

How Would RAM Work?

Capital Gains

1. Calculate gain: Sale price minus cost base
2. Apply 30% discount: Gain × 70%
3. Tax at marginal rate: Discounted gain × your tax rate

Capital Losses

• Losses also discounted by 30%
• Can only offset against future RAM gains (ring-fenced)
• Excess losses carry forward indefinitely

Dividends

• Taxed in year received
• No 30% discount applies
• Taxed at full marginal rate

Cost Base

RAM taxpayers would need to obtain a market valuation when RAM first applies. Valuation deadline would be the later of:

• 12 months from acquisition or when FIF rules start applying
• Due date of first return using RAM

Important Considerations

Exit Tax

If you leave NZ, RAM interests would be deemed sold at market value immediately before becoming non-resident. However, if actually sold within 3 years of leaving, you'd still be subject to NZ tax on the disposal.

Election Process

• Election made in first year with FIF income
• Applies to ALL eligible investments (all-or-nothing)
• Can elect out later (triggers deemed disposal)
• Once you elect out, cannot re-elect RAM later

$50,000 Threshold

The existing $50,000 cost threshold exemption would still apply. If your total FIF investment cost is under $50,000, you may not need to use any calculation method (including RAM).

RAM vs FDR vs CV - Which Would Be Better?

What Should You Do Now?

If you became a NZ tax resident on or after 1 April 2024 and the proposed legislation passes:

1. Track your investments: Keep records of all foreign investments and when acquired
2. Consider valuations: You may need market valuations for when RAM first applies
3. Don't rush decisions: Wait for final legislation before making major investment changes
4. Seek advice: Consider professional tax advice for your specific situation