What is FIF tax?
Special tax rules apply to investors who invested more than $50,000 NZD in Foreign Investment Funds (FIFs) at any point during the last tax year between 1 April and 31 March, even if just for one day, including in money market funds like DARXX. Although the end of the tax year is 31 March, tax returns and payments aren’t due until 7 July.
Foreign Investment Funds (FIFs) is the technical term for money in different types of overseas investments. It includes shares in overseas companies and ETFs.
If the FIF rules apply to you, you’ll need to work out your total overseas income from your investments to include along with your individual tax return (IR3) or trust tax return (IR6). This article, along with the data in your Hatch tax report, will give you everything you need to know about what you need to do at tax time.
Doesn’t sound like you?
Perhaps one of these will:
FIF Tax Explained
Foreign Investment Fund (FIF) tax rules apply when the cost price of your overseas investments tips over $50,000 NZD, even if it’s just for one day. A few things to note:
- The $50,000 NZD threshold is not based on the market value of your investments; it’s the cost price (what you paid for them) and doesn’t include any gains or losses
- If you’re investing through a trust, NZ FIF tax rules are likely to apply, not matter how much you have invested
- You can check your estimated peak investment cost for the current tax year at any time in the Tax Reports section in Hatch
- Hatch can do the heavy lifting with our FIF tax calculator when you order a Hatch FIF report after the end of every tax year
- Alternatively, you can work out the income you’ve earned from FIFs on your own using IRD’s resources and calculator.
So, when do NZ FIF tax rules apply?
If at any point throughout the year, the total cost price of your overseas investments tipped over $50,000 NZD (excluding most Australian shares), then FIF rules will apply to you. Your FIF investment cost also includes your available balance on Hatch, which is held in the Money Market Fund. Here are some examples:
- You make regular investments of $10,000 NZD every year. The FIF rules apply for any tax year where the total cost of your overseas investments was $50,000 NZD or more at any point during the year (the total investment cost, so what you paid not including gains or losses). In this example, that would occur in the fifth year (assuming you didn’t sell anything).
- If you had $49,000 NZD of shares, bought another $3,000 NZD, then sold $7,000 NZD, the FIF rules would apply. This is because you had shares that cost more than $50,000 NZD ($49,000 + $3,000 = $52,000 NZD) during the tax year, even though only temporarily.
- Following on from the last example, if you sold that $52,000 NZD of shares, FIF rules would only apply the year you owned those shares. In the following year when you have less than $50,000 NZD invested, the FIF rules would no longer apply.
You can check your estimated peak investment cost for the current tax year at any time in the Tax Reports section in Hatch.
When wouldn’t the FIF rules apply?
If, for example, you invested $49,000 NZD and it grew in value to $51,000 NZD. The FIF rules don’t apply because your investment cost (that is, what you paid, not including gains or losses) does not exceed $50,000 NZD.
Learn more about your investment cost on Hatch
Investing through trusts
Most types of trusts fall under the FIF rules regardless of the amount they invest overseas. However, some eligible trusts are only subject to FIF rules if they are above the $50,000 NZD threshold.
Check to see if you invest through an eligible trust.
How to meet your FIF obligations at the end of the tax year
Here’s a step-by-step guide to file your tax return in line with the FIF rules.
There are two numbers you need to complete in the ‘overseas investment’ section of your tax return:
- Total claimable overseas tax paid (Step 1)
- Total overseas income earned (Step 2)
Step 1. Find out your total claimable tax paid on overseas income for your Hatch investments
Entering the tax you’ve already paid in the US may result in you receiving a tax credit for some or all of it here in New Zealand. Your annual Tax Reports show the total overseas tax you’ve paid with Hatch, but there’s a little more complexity for FIF taxpayers. We explain here how to work out which investments you can claim a tax credit on.
If you’ve paid tax on overseas investments outside of Hatch, then you’ll also need to include this in your return.
Step 2. Work out your total overseas income for your Hatch investments
To work out your total overseas income, you can order your custom Hatch FIF report. We’ll email it to you as soon as it’s available after the end of each tax year. We can calculate your Hatch FIF income for you, or you can manually calculate your overseas income yourself using IRD’s resources and calculator.
If you have other overseas investments outside of Hatch, you’ll need to include these in your overseas income calculations.
Step 3. Fill out your tax return
If you’re paying tax as an individual, you’ll need to complete an IR3 tax return. If you’re a trust, you’ll need to complete an IR6 tax return. It’s easy to do online using myIR.
For completing your individual tax return, you’ll need to use the two numbers you collected earlier:
- Total claimable overseas tax paid (from Step 1)
- Total overseas income (from Step 2)
If you’ve received any other untaxed income outside of Hatch, you'll need to fill out the relevant sections to declare it.
If you’re an individual, submit your IR3. There are two ways to go about this:
- Online through myIR. Find the ‘File my individual tax return’ link and complete it online. This will be available at the end of each tax year, after 31 March.
- Download and complete an IR3 form manually and send it in using the instructions on the form.
I need more help!
We don’t know your individual tax situation but we are happy to point you in the right direction. If you have any tax questions: