NZ says it has no Tax Gain Tax, however, it has a different tax program Foreign Investment Funds (FIF) to tax people on overseas investment, this blocked many people to move to NZ, because after becoming NZ Tax resident for a year, your origin overseas investment will be taxable, the taxing way is unique, it is not on your Capital Gain (realised profit ), but either on your yearly Open Value or on both of your realised and unrealised profit.
Fair Dividend Rate (FDR) method and Comparative Value (CV)
These are two common methods for individuals, FDR is to calculate your taxable income based on your open value, which is 5% of open value of the tax year.
Please note CV and FDR are two common methods to calculate your taxable income, your tax rate itself may vary based on your income, if you are interested, there is a table at the bottom of this article.
CV is a bit different, as you can see, based on FDR, even you had a loss in last tax year, you still need to pay tax for your investment. CV is different and more complicated, the simplified version of taxable income is
(Close + Distributions) – (Open + Purchase)
Pro
- You may get a non-zero but low CGT through switching between FDR and CV
Con
- Block overseas middle class or rich people to move in.
- Double tax problem for US citizens who live in NZ.
- It is quite complex comparing to 15% CGT.
Let’s use one recurring investment as an example.
- Started with 30K USD.
- Monthly $1000 USD to purchase SPY.
- Started from end of April 2021 to end of April 2025.
Your total cost is $79000.00, your portfolio value is $94030.89 by end of April 2025, in US, if you sell all your portfolio, you need to pay about 15% Capital Gain, it is about $2244.
In NZ, if your tax rate is 33%, through FDR for these 4 years, you will pay $3523 in total, which is much more than CGT, through CV method, you will pay $4852. But if you choose to use CV during the loss year and FDR during the profit year, the tax can be reduced to $1089.
This is the pro, that you can switch between FDR and CV to reduce the tax.
Things may be different if you moved to NZ from US as a US Citizen, because FIF is not treated as CGT, so you need to pay CGT to US, at the same time you need to FIF tax to NZ, clearly it is double taxed, but there is no way to avoid it. In addition, just imagine that you think of moving to NZ, but when you live there for a year, and you realised that you need to pay tax in coming tax year based on your previous investment from overseas, and it is based on either open value or unrealised profit, what do you think? For people who are super rich, they may just run away.
My thoughts
If NZ want to encourage people for doing investment, I think a real no CGT will be better, that says learning from Singapore, let the super rich come, spend and don’t need to worry about what they invested before they came.
Or they should just simply push a Capital Gain Tax to tax on the realised profit, not on both realised and unrealised profit.
Anyway for local kiwis, who work here, it is quite clear, this tax is lower than US CGT in these cases,
- If you have a profit and return is above 11%, FDR tax is low, comparing to 15% CGT or CV (check below of how this 11% is calculated.).
- If you have a loss, calculating tax in CV, and you should pay 0 for your tax for that tax year.
So what is the solution, do not target to make a loss, target to make your return above 11%.
References
- https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-income/foreign-investment-funds-fifs
- https://www.ird.govt.nz/income-tax/income-tax-for-individuals/tax-codes-and-tax-rates-for-individuals/tax-rates-for-individuals
- How 11% is calculated?
- It is based on FDR method of Open Value * 5% * 33% < Open Value * Return Rate * 15%
- If Return Rate > 0.05 * 0.33 / 0.15 (=0.11) the tax you pay will be less than 15% CGT.
Appendix
How to know whether FIF applies to me?
- Collect all your purchase and sale transactions for the foreign shares within the tax year.
- Convert each transaction amount to NZD using the exchange rate on the respective transaction dates.
- Track your holdings over time by starting with zero, adding the NZD cost of each purchase, and subtracting the NZD cost of each sale.
- The peak holding cost you reached at any point in this tracking is the figure to compare against the $50,000 FIF threshold.
- If your peak holding cost exceeds NZ$50,000 at any time, you are subject to FIF rules for the year.
NZ Marginal Tax Rates Table:
| Taxable income (NZD) | Marginal tax rate |
|---|---|
| $0 – $15,600 | 10.5 % |
| $15,601 – $53,500 | 17.5 % |
| $53,501 – $78,100 | 30.0 % |
| $78,101 – $180,000 | 33.0 % |
| $180,001 and above | 39.0 % |