FIF Foreign Investment Fund Income Method

Background

There are several methods available for an individual to calculate the FIF income or loss from their FIF interests. FIF is something when you have ownership in investment funds which are located outside of New Zealand.

A certain reporting is required to for tax return purposes.  One of the method is 10% rule

To use the AFI method, a person is required to have an income interest in the FIF of 10% or more in the accounting period. When there are variations in the income interest, a weighted average calculation is performed.

This rule however does not work as intended as an acquisition or disposal may result in an income interest below 10% for the entire accounting period (based on a weighted averaged calculation) even if the actual interest held during the period of ownership is 10% or more. As a result, a taxpayer may not be able to access the AFI method for that period and need to apply a less favourable FIF calculation method. 

Amendment is being proposed in 2024

The amendment proposed would expand access to the AFI methods in periods where a person acquires or disposes of a FIF interest. Therefore, the amendment would change the period for application of the 10% income interest test to be the period of ownership within the accounting period, rather than the entire accounting period.

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