Calculating FIF Income

Do I Need to Calculate FIF Income?

Okay, so you've checked the Thresholds & Exemptions. You generally need to calculate FIF income if:

1. You are an NZ tax resident (and not currently a transitional resident).
2. You hold investments that are considered attributing interests under the FIF rules (like shares in a foreign company such as Nvidia or Apple).
3. You are not exempt - meaning either:
   • The total cost of your attributing interests went above NZ$50,000 at any point during the tax year, OR
   • You choose to opt into the FIF rules even if under the $50k threshold.
   • AND other specific exemptions (like the ASX one) don't apply to those particular investments.

If all the above apply, then yes, you'll need to choose a method and calculate your FIF income to include in your tax return.

Overview of Calculation Methods

There are a few different ways to calculate FIF income, but for most individual investors dealing with ordinary shares or ETFs listed on foreign exchanges, the main two methods you'll encounter are:

• Fair Dividend Rate (FDR) Method: Calculates income based on 5% of your investments' starting value.
• Comparative Value (CV) Method: Calculates income based on the change in your investments' value plus any gains/dividends received.

Other less common methods like the Cost Method (CM), Deemed Rate of Return (DRR), and Attributable FIF Income Method exist but have specific criteria and are often used for different types of investments or investor structures (like >10% holdings). We'll focus on FDR and CV here.

FDR Method Explained

The Fair Dividend Rate (FDR) method is often the default or most common method used for listed shares and ETFs.

How it works:

• You calculate 5% of the total opening market value (the value on the first day of your income year - usually April 1st) of all your FIF investments that you are using the FDR method for.
• You also need to add any extra income calculated under the "Quick Sale Adjustment" (see below) if you bought and sold shares in the same FIF during the year.
• Generally, actual dividends received during the year are not taxed separately when using FDR (though fee rebates might be).

Pros:

• Relatively simple calculation if you know the opening market values.
• Your taxable income from these investments is effectively capped at 5% of their opening value, even if they performed much better.

Cons:

• You can have FIF income to pay even if your investments lost value overall or didn't pay any dividends.
• You generally cannot claim a tax loss using the FDR method.
• Requires you to know the market value at the start of the income year.
• The Quick Sale Adjustment adds complexity if you trade frequently within the year.

Quick Sale Adjustment Explained:

• This applies if you buy and then sell shares or units in the same foreign investment (e.g., sell VOO shares you also bought earlier in the same income year).
• It's designed to capture income from short-term trading gains that the basic 5% calculation might miss.
• You need to calculate an additional income amount which is the lesser of:
  • The actual gain you made on those specific quick sales.
  • An amount calculated using a specific formula involving the number of shares bought and sold and their average cost (the "peak holding method amount").
• (This can be complex - our FIF Calculator helps with this, or see IR461 page 15 for a detailed example).

CV Method Explained

The Comparative Value (CV) method calculates your FIF income based on the actual change in the value of your investments plus any distributions.

How it works:

• The basic idea is: (Closing Market Value + Sale Proceeds + Dividends/Gains Received) - (Opening Market Value + Purchase Costs).
• This calculation aims to reflect your actual economic gain or loss for the year on those investments.

Pros:

• More closely matches the actual performance of your investments.
• If your investments made a loss overall for the year, this method will reflect that (though whether you can claim the loss depends - see below).

Cons:

• Can be more complex to calculate as you need to track opening and closing values, all purchases, sales, and distributions accurately.
• Its use for standard listed shares/ETFs is generally limited to individuals and certain types of trusts ('eligible trustees type B'). Companies usually can't use CV for ordinary shares.
• If your investments performed very well (e.g., grew 20%), your FIF income under CV could be much higher than under FDR.

When losses can be claimed/reduced to zero:

• If you are an individual using CV for ordinary shares where you could have used FDR instead, any calculated loss under CV is reduced to zero. You can't claim the loss against other income.
• If you are using CV because the investment is a non-ordinary share (where FDR wasn't allowed), then a calculated loss can generally be claimed, usually against other FIF income.

FDR vs CV: Which to Choose? (The Comparison Option)

Here's a helpful rule for individuals and eligible trusts (type B):

• If you are eligible to use both FDR and CV for your investments (i.e., they are ordinary shares), you can calculate your total FIF income using both methods.
• You can then choose to declare the lower of the two calculated total income amounts in your tax return.
• Important: Even if the CV calculation results in a loss, the lowest amount you can declare using this comparison option is zero. You can't declare a loss this way.
• This comparison option generally isn't available to companies or other types of investors. They typically must stick with the method they are eligible for (usually FDR for ordinary shares).

(Our FIF Calculator is designed to help eligible users compare FDR and CV results automatically.)

Currency Conversion

All amounts used in your FIF calculations (market values, purchase costs, sale proceeds, dividends) must be in New Zealand Dollars (NZD).

• You need to convert any foreign currency amounts using an appropriate exchange rate.
• IRD accepts several methods and our FIF Calculator automatically pulls the correct rates and converts your foreign currency values to NZD for you.
• You must be consistent with the method you choose for currency conversion across your calculations for the year.