Tax Updates: 17 March 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Proposed new FIF calculation method

In December, the Government released an officials’ issue paper, “Effect of the FIF rules on immigration: proposals for amendments.” That release has now been followed up by the announcement last week that the Government intended to change the Foreign Investment Fund (FIF) regime to minimise its deterrent effect for new migrants and returning New Zealanders.

Under the proposal, a new revenue account method for some migrants and investments would see income related to the FIF each year being dividends received plus 70% of realised capital gains. The new method would apply from 1 April 2025 onward, and it would be available (but not mandatory to use) to people who became fully tax resident in New Zealand on or after 1 April 2024, subject to them meeting other eligibility criteria.

Accompanying the announcement, a two-page fact sheet has been released, which endeavours to explain the new method succinctly.

The reference to people who “fully became tax residents in New Zealand” means once a person’s transitional tax residency status has come to an end, as during the person’s transitional period, FIFs are excluded from New Zealand taxation.

Yet to be announced is the period for which a returning New Zealander must not have been a tax resident. However, it is hinted that this period is likely to be less than 10 years of non-residence required to be eligible for transitional migrant status.

Trustees will also be able to use the new calculation method, if the principal settlor of the trust would have been entitled to do so.

The method will only be able to be used in relation to FIF investments in unlisted entities (but not one whose main investment is listed entities) that the person acquired (or pursuant to arrangements made) before becoming a New Zealand resident. Notably, those who remain subject to tax on a citizenship basis after becoming a New Zealand tax resident (US citizens for example) will be able to use the revenue account method for all their FIF investments.

It is also presently proposed that where a loss is made from a disposal of the FIF, 70% of this loss would be able to be offset against income calculated under the revenue account method, either in the same or in a future income year.

Finally, should the person cease being a New Zealand resident after using the revenue account method to calculate their FIF income, an exit tax may apply to deem the person to have disposed of the FIF immediately before the loss of residence.

It should be noted that the fact sheet is purely indicative of what the new revenue account method will likely look like once all the nuts and bolts have been tightened for inclusion in a forthcoming tax bill, most likely in the second half of 2025.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.