Upcoming Changes to New Zealand’s Foreign Investment Fund (FIF) Rules
The New Zealand government has announced upcoming changes to the Foreign Investment Fund (FIF) regime, aiming to ease tax burdens for new migrants and returning New Zealanders. These changes, set to take effect from 1 April 2025, introduce a new "revenue account method" for calculating taxable income from foreign investments.
Key Changes
1. Introduction of the Revenue Account Method
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This new method applies to new migrants and returning Kiwis who meet specific criteria.
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Taxable income will be calculated based on dividends received plus 70% of realized capital gains.
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Under this method, taxation makes better sense as tax is imposed on actual income and capital gains when they are realized, rather than a deemed tax on an arbitrary opening value, which could result in unfair taxation during periods of market downturns.
2. Eligibility Criteria
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Applies to new migrants who became fully tax residents on or after 1 April 2024.
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Returning Kiwis can use this method if they have been non-tax residents for a minimum number of years (expected to be less than the 10 years required for transitional residency).
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Trustees of trusts may also use the method if the principal settlor qualifies.
3. Losses and Exit Tax
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70% of any losses can be offset against income calculated under this method.
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This is a fairer approach compared to the existing FIF methods, which effectively ignore holding losses and impose tax even when no income is realized.
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If a taxpayer leaves New Zealand after using this method, an exit tax may apply, treating the shares as sold at market value before their departure.
Next Steps
The proposed changes are expected to be included in a tax bill in late 2025, with public consultations before implementation.
These changes bring a more logical and equitable taxation approach, ensuring that investors are taxed only on actual gains and income, rather than speculative market values.