The recent tax Bill proposes some key amendments to the foreign investment fund (FIF) rules. The first proposed change lifts the de minimis threshold.
Generally, if a person’s total cost base of all FIFs in a year is below the de minimis threshold, then the person would be exempt from the FIF rules. Any dividend or distribution from the foreign investment would remain taxable income. The purpose of this rule is to exempt “small-scale investors” from the FIF regime.
The de minimis threshold was increased from $20,000 to $50,000 in 2000 and remained unchanged for over two decades. It is now proposed that the threshold be increased to $100,000 effective from 1 April 2026. Investors can still voluntarily apply the FIF rules if they wish.
Earlier this year the revenue account method (RAM) for calculating FIF income was enacted. This was specifically targeted at recent migrants and people returning to New Zealand after a significant time overseas. The proposed change would permit the use of RAM for all natural persons and eligible trustees.
To summarise, RAM provided that an eligible person could account for FIF income by returning a discounted amount of a realisedcapital gain which would be taxed at their marginal tax rate (the discounted amount of the FIF income being 70% of the capital gain). Dividends would remain fully taxable.
RAM generally only applies to unlisted FIFs. However, if the person is taxed in another country by virtue of citizenship (such as the US), then the person can apply RAM to all FIFs.
RAM would remain voluntary and only one of several options for calculating FIF income. It is proposed that applying RAM would require a 5-year lock in period. Whether RAM is right for you will depend on the type of foreign investments you hold but it may be worth considering.
We are happy to discuss options surrounding your foreign investments or any other questions relating to the FIF rules that you may have.