Should I actively avoid FIF investments?

[JonathanGiles]

Hi all,

Sorry if this is the wrong forum - perhaps this is better suited as a newbies corner question. Anyway, I'll ask here.

I'm in the final stages of preparation for investing in the share market. I am happy to be boring and average, and therefore want to primarily focus on index funds / ETFs. I am keen to get diversification internationally. It seems to me I have (at least) three options:

1) Invest in US stock market in Vanguard Total Market Index ETF (VTI) and similar international ETFs (e.g. VXUS). Expense ratio 0.05% / 0.14% and definitely falls under the FIF taxation rules.

2) Invest in AU stock market in Vanguard Total Market Index ETF (VTS) and similar international ETFs (e.g. VGS). Expense ratio 0.05% / 0.18%, and presumably does not fall under the FIF taxation rules.

3) Invest in NZX smartshares. Expense ratio is 0.75%, and certainly doesn't fall under FIF taxation rules.

Given option 1) and 2) are both very low expense ratios, and assuming I am correct about option 2) not being a FIF-related investment, I would love to hear peoples thoughts on whether it is wiser to take option 1) with the possibly lower expense ratio (and fees obviously matter over the long term), or whether not dealing with FIF in option 2) is the better option.

In other words, the thing tripping me up now is what is the lower cost option. I can appreciate and calculate the costs related to FIF taxes, but I'm not clear on the costs involved in something like option 2) or 3). Any details would be really appreciated.

Some interesting links:

1) Here is the list of Vanguard ETFs on offer in Australia (including VTS and VGS). Note that VTS is still based on US dollars - so I'm not sure if we can avoid FIF with this?
https://www.vanguardinvestments.com.au/retail/ret/investments/etfs.jsp#etfstab

2) The IRD advice on FIF Australian exemption:
http://www.ird.govt.nz/toii/fif/how-taxed/how-tax-exemption/

4) The latest IR871 exemption list from March 2014 does not include these shares, but that may be because they weren't created until November 2014. How do we get guidance on such shares?
http://www.ird.govt.nz/calculators/tool-name/tools-a/toii-fif-list-aust-share-exemption-2014.html?id=righttabs

Thanks!

[G on]

When I talked to IRD about FIF I was told IRD allow up to 50kNZD per person in FIF companies before the fif system comes in. If you are going over that in FIF companies then all investments come under the FIF system. I avoid getting into FIF as I just don't want the tax hassle. Obviously if you have far more than 50kNZD outside Aus then start learning accounting methods. There are plenty of contributors discussing this if you search FIF.

[JonathanGiles]

Correct - there is a $50k NZD exemption ($100k NZD if the account is a joint one with a partner, which it is in my case). I will certainly be going over this threshold, which is why I am looking into this so seriously now. In terms of tax and accountancy - I've recently switched accountants precisely for this reason - so that someone smarter than me can deal with all that hassle. However, it is still my obligation to understand my options.

Thanks!

[JonathanGiles]

For what it is worth, I have emailed IRD to ask about whether the vanguard VGS and / or VTS ETFs are considered FIF exempt. However, regardless of this response, my bigger questions remains: what is the preferred option from a taxation perspective - to avoid FIF or not?

[Aaron]

If you want to invest overseas and diversify I wouldn't have thought that you would have much choice but to invest in FIFs. Smarter people on this site may know of other alternatives.

In regard to your initial query I think 2) is quite likely to be a FIF and 3) depending on which Smart Share Fund you invest in this could also be a FIF and I don't think they have an international fund just NZ and Aussie.

I have hopefully attached the list of Aussie shares considered exempt from the FIF regime.

If you can find a FIF that pays a greater than 5% dividend your onto a winner. The 5% is just an arbitrary figure as US and other foreign companies don't pay dividends but reinvest profits for capital growth as I don't think they have an imputation regime like NZ & Aussie(so profits are taxed as second time as dividends.). Most other countries have a capital gains tax to tax this growth. NZ doesn't have a capital gains tax but have the FIF regime and the Fair Dividend Rate (FDR) instead.
I personally don't like managed funds but if Warren Buffett suggests the low cost Vanguard index funds it would be very tempting. I am expecting the GFC2 this year so personally will continue to wait for the indexes to drop before investing. Mind you I could be waiting another ten years for the GFC2 so don't listen to me.

[JonathanGiles]

Aaron - thanks. I guess my confusion is around where the FIF applies - is it on the ETF itself, or the stocks that the ETF owns? Clearly if it is the later, it is FIF, but I was wondering if it is the former....?

[JonathanGiles]

Regarding > 5% dividend - I spoke about this to a friend who is an investment advisor. He stated that getting enough in dividends to cover the FIF taxes essentially never happens - almost always the FIF taxes are paid out of the pocket of the owner of the shares, rather than via the dividends produced. In the end this is why FIF was created - to adequately tax overseas shares that prefer to retain dividends and instead grow the share price. This is one of the things that worries me about FIF - paying tax on unrealised capital gains (when it could all be blown away by GFC2 after 20 years of paying the taxes!).

[Aaron]

Dear Jonathon
Not sure what you mean. I am guessing you are asking if a NZ based fund investing in overseas assets is considered a FIF. Below is the definition from the IR461 Guide to FIF rules. You can access this from the IRD website. just search IR461. I guess a NZ based fund that pays the tax on your behalf like a PIE fund would mean you don't personally have to calculate the FDR or CV but they would do it for you and you would give them your Personal Investor Rate PIR.

"What is a FIF?
A FIF is
• a foreign company
• a foreign unit trust
• a foreign superannuation scheme (prior to 1 April 2014)
• a FIF superannuation interest (from 1 April 2014)
• an insurer under a life insurance policy (and the policy is not offered or entered into in New Zealand).
Note: There are potentially different rules for holdings of 10% or more.
A FIF does not include term deposits, bonds, debentures, money lent, foreign employment, pension"

My Kiwisaver fund invests internationally but I guess this is like a PIE fund.
It is pretty confusing so maybe ring some of the investment companies like Smart Shares and see if they can clarify it for you or read the IRD booklet. Sorry I can't be of more help it would depend on the fund you are looking to invest in and how it is structured and where it is based.

[777]

As an investor in Platinum Funds I have been treated better under the FIF system than I was before. This is because their distribution is reasonably high.

[Aaron]

Regarding > 5% dividend - I spoke about this to a friend who is an investment advisor. He stated that getting enough in dividends to cover the FIF taxes essentially never happens - almost always the FIF taxes are paid out of the pocket of the owner of the shares, rather than via the dividends produced. In the end this is why FIF was created - to adequately tax overseas shares that prefer to retain dividends and instead grow the share price. This is one of the things that worries me about FIF - paying tax on unrealised capital gains (when it could all be blown away by GFC2 after 20 years of paying the taxes!).
I didn't say I knew any FIFs that paid a dividend greater than 5% but if you know of one tell me. If your friend is an investment advisor you would be better asking him/her about this as I am not an investment advisor and as an amateur any advice I give should be carefully double checked and totally relying on it would be crazy.
Ask your friend when the GFC2 is going to arrive I am getting sick of waiting.

[JonathanGiles]

As an investor in Platinum Funds I have been treated better under the FIF system than I was before. This is because their distribution is reasonably high.

It would be very interesting for me if you could give some rough idea of what your tax-related costs were pre- and post-FIF, if you have them handy? Nothing super specific, but the problem I have is that I don't know what costs are incurred if FIF is avoided. To me it seems like non-FIF investments should result in much less tax (assuming the share prices grow rather than large dividends being paid). Thanks!

[JonathanGiles]

I didn't say I knew any FIFs that paid a dividend greater than 5% but if you know of one tell me. If your friend is an investment advisor you would be better asking him/her about this as I am not an investment advisor and as an amateur any advice I give should be carefully double checked and totally relying on it would be crazy.
Ask your friend when the GFC2 is going to arrive I am getting sick of waiting.

I wish I knew one! :-) As I said, I'm likely to just invest in 'total market index' funds....which certainly won't cover the FIF taxes. I'm in the same boat as you with GFC2 - I've got cash and am waiting to sink it in - although as the saying goes "time in the market is better than trying to time the market". I only just got the cash - and I'm not sure I'll be waiting long to invest it.

[777]

It would be very interesting for me if you could give some rough idea of what your tax-related costs were pre- and post-FIF, if you have them handy? Nothing super specific, but the problem I have is that I don't know what costs are incurred if FIF is avoided. To me it seems like non-FIF investments should result in much less tax (assuming the share prices grow rather than large dividends being paid). Thanks!

Bare on mind the requirement for Australian Funds have to distribute fund profits so the 5% is exceeded a lot of the time. I don't hold my Australian shares in my family trust, as I do with Platinum, so don't have that complication. All distributions were taxable prior to FIF but now just form part of the return ,so some years the return is less than 5% so less tax is paid. The fluctuation of the exchange rate can have a big affect on yearly calculation. ie. a good distribution but not a great capital return, but no or little tax paid on the distribution.

Have to go and will be off line until tomorrow.

[JonathanGiles]

Earlier in this thread I asked about Australian Vanguard stocks on the ASX (notably VTS and VGS). Whilst I appreciate that these stocks represent ownership of various international shares, my question was whether the IRD is looking at the VTS / VGS shares, or the shares owned by VTS / VGS. To me it seems reasonable to expect that it is the former. If that is true, according to the IRD [1], the criteria for determining FIF exemption is as follows:


When you hold shares in a company that:



is listed on an approved index under Australian Stock Exchange (ASX) Market Rules (http://www.asxgroup.com.au/media/PDFs/asx_or_procedures.pdf) such as the ASX All Ordinaries (http://www.standardandpoors.com/indices/sp-asx-all-ordinaries/en/us/?indexId=spaustaordaudto--p-au----#)
is Australian-resident (and not treated as resident in another country under an agreement between Australia and that other country)
maintains a franking account, and
is not stapled stock (http://www.ird.govt.nz/toii/fif/info-help/toii-fif-about-glossary.html#ss)

the shares are exempt from being an attributing interest in a FIF. Where these shares are held on capital account, the only income to be returned is the dividend income.

[1] http://www.ird.govt.nz/toii/fif/how-taxed/how-tax-exemption/

Thoughts?

[G on]

My understanding is it is the shares of the etf that are treated for fif. aus etf's for Aussies have a different tax treatment for them going by the statements that are posted out. I just pay tax on the dividends. As I have shares in STW 200 ASX it is the gain and dividends which would be worked out under the fif system and not the individual companies they own. I looked at this and decided that for me getting involved in a system of fif tax was just going to be too much hassle and record keeping for the benefit it may have. It just added another area of complexity unless I was going to put money just in etf's and not individual shares. Because you pay on unrealised gains if you get less than 5% yield but if you are buying selling it's a way of not worrying about being classed as a trader if you are not already considered a trader by ird. You can always ring IRD with your questions. But if you have an accountant they would be best paced to advise on the set up for the FIF tax system. Plus you could do a dummy portfolio on owning etfs and the fif obligations to see if it is worth it for you.

[Harvey Specter]

Just because a company is ASX listed, does not mean that it is Australian resident (the NZ dual listed ones being a perfect but irrelevant example). News Corp is ASX listed but I m pretty sure is a US tax resident now after it reincorporated in the US (dont quote me on this).

Note, if you invest in a NZ fund so that you are not subject to FIF, the fund still will be. So you avoid the admin but not the tax burden. If you are just trying to avoid the admin, Sharesight apparently does it automatically in its premium plan (I only use their common plan as I dont do overseas direct investment so cant comment).

[JonathanGiles]

Thanks guys for your insights. My main objective in asking wasn't to avoid the admin (I'm resigned to having Sharesight / my accountant handle that), it was more of an exercise in understanding whether paying the FIF taxes eroded all benefit from investing overseas (where the markets are bigger / more diversified and have lower expense ratios). I'm still not sure what the answer is there, but at least I know that I can (most probably) ignore ASX and just do VTI directly in the US (via my E*Trade account). This is my preference as I already have funds over there.

[G on]

In regards to your question about costs. Well, if you are involved in the FIF tax requirements with an accountants input it will cost more than investments where the dividends are the only part to be included as for me I can do that on a simple spread sheet with currency conversion.It always struck me as strange that etf's,as they are simple to invest in over a long time, attract the fif tax. Talk about making things difficult for NZers to get ahead.

[JonathanGiles]

In regards to your question about costs. Well, if you are involved in the FIF tax requirements with an accountants input it will cost more than investments where the dividends are the only part to be included as for me I can do that on a simple spread sheet with currency conversion.It always struck me as strange that etf's,as they are simple to invest in over a long time, attract the fif tax. Talk about making things difficult for NZers to get ahead.

It would seem to me, based on a bit of (simplified) spreadsheeting, that the addition of FIF taxes makes an investment in overseas total market ETFs (e.g. VTI) totally unfeasible.

My (again, very simplified) calculations suggest that at 1-5% share growth, tax eats 33% of any gross earnings (using the CV method). Once you get past 5%, I believe FDR is the better method, and the percentage of tax begins to drop, but still, within the 6-10% share growth range, the lowest the tax percentage becomes is 17%.

I hope I'm wrong, but given these calculations, one must begin to think that international investment is being actively rejected by the government, in favour of local investment. To me this is terrible - I want the opportunity to diversify and invest for the long term with the minimum of fees and taxes. I have a strong suspicion (again, backed up by a quick spreadsheet) that SmartShares, with its higher expense ratio, may still come out on top over FIF taxes investments.

I'd appreciate peoples thoughts, and advice on how else one might invest to minimise long term costs.

Thanks!

P.S I should note that my calculations assumed all taxes were paid 'out of pocket' - that the initial capital invested was left untouched and allowed to grow every year.

[Aaron]

I wouldn't have thought that the FIF regime is much worse than anything else depending on your return on investment. Assuming you are on the top tax rate of 33% tax will eat 33% of your net taxable earnings no matter what the investment. What is the difference between paying tax on a dividend earning company in NZ that has minimal growth or paying tax on 5% of the value of a FIF investment assuming (you would hope for the risk involved) it will generate growth of at least 5% or more but pay next to no dividends. Like you say if the FIFs grow by less than 5% use the CV method and no tax to pay if it goes backward (although you will have to pay tax on the regrowth which is the real unfair part of the FIF regime).
You could buy a dividend paying company on the ASX that is on the exempt list. You pay tax on the dividends(no franking credit allowed, come on Aussie remember CER). The FDR is just a replacement for dividends. You are right to worry about tax but I would be more concerned with finding an investment that is going up instead of down. Any growth over 5% is tax free on your FIF.
That said I would also like to hear how other people invest overseas particular in passive/index funds.

[JonathanGiles]

I wouldn't have thought that the FIF regime is much worse than anything else depending on your return on investment. Assuming you are on the top tax rate of 33% tax will eat 33% of your net taxable earnings no matter what the investment. What is the difference between paying tax on a dividend earning company in NZ that has minimal growth or paying tax on 5% of the value of a FIF investment assuming (you would hope for the risk involved) it will generate growth of at least 5% or more but pay next to no dividends. Like you say if the FIFs grow by less than 5% use the CV method and no tax to pay if it goes backward (although you will have to pay tax on the regrowth which is the real unfair part of the FIF regime).
Perhaps it is my naivety of the NZ stock market, but I would have assumed that most companies don't keep their share price (mostly) static and don't pay out massive dividends (although I do understand NZ does pay out higher dividends that the US, on the whole). If my assumption is right, that would mean share prices do fluctuate (hopefully upwards), and therefore in NZ we have the benefit of not paying any tax on the (paper only) capital gains of the shares - just the dividends. Would it be fair to say that this should lead to lesser tax overall than going purely with FIF?


You could buy a dividend paying company on the ASX that is on the exempt list. You pay tax on the dividends(no franking credit allowed, come on Aussie remember CER). The FDR is just a replacement for dividends. You are right to worry about tax but I would be more concerned with finding an investment that is going up instead of down. Any growth over 5% is tax free on your FIF.
That said I would also like to hear how other people invest overseas particular in passive/index funds.
I agree - like I said earlier my preference is just ETFs - simple, easy, non-exciting but largely proven to be one of the best options there is in the long term. I too would love to hear from others involved in overseas investment.

Thanks!

[JonathanGiles]

I was very early on turned off by SmartShares, but I am coming around with the more research that I do. I think if NZ ever got a full capital gains tax the benefits of SmartShares would diminish quickly (and I would move to a US-based ETF VTI without any question), but for now it seems that investing overseas in a FIF regime results in effectively a 1.6% subtraction from whatever percentage gains are earned by the shares. That far exceeds the 0.75% expense ratio for SmartShares.

But like I have said all along - I hope I'm wrong!

[Harvey Specter]

Perhaps it is my naivety of the NZ stock market, but I would have assumed that most companies don't keep their share price (mostly) static and don't pay out massive dividends (although I do understand NZ does pay out higher dividends that the US, on the whole). If my assumption is right, that would mean share prices do fluctuate (hopefully upwards), and therefore in NZ we have the benefit of not paying any tax on the (paper only) capital gains of the shares - just the dividends. Would it be fair to say that this should lead to lesser tax overall than going purely with FIF?The yeild stocks (power and property companies) pay out 60%+ of profits as dividends. Growth companies (Xero) pay out nothing.

Typically overseas companies (esp US), even 'income stocks' dont pay out dividends due to double taxation (which NZ avoids by imputation credits). Likewise, multinationals may not have access to their cash due to tax reasons (eg. Apple has $100B in cash which it is only just starting to distribute though divs and buybacks)


I was very early on turned off by SmartShares, but I am coming around with the more research that I do.But smartshares are NZ and Australia only so no global diversification which is what I thought you want??

[voltage]

Jonathan, you must beware of other issues with US ETFs. The main one is death duty tax is liable on any holding over $60000 for non US residents. This is why you need to look a non US domiciled ETfs. Some investors buy on the UK stock excahnge where these ETFs are domiciled in Ireland. However, Vanguard has just launched a new global one that is australian domiciled, VGS, with an MER of 0.18%. Dividends can be reinvested.
About the FIF regime try not to make investment decisions based on taxation but focus on long term returns.

[JonathanGiles]

But smartshares are NZ and Australia only so no global diversification which is what I thought you want??

That is a valid point. I guess my concern is about what is more important - greater diversification or lower fees? Perhaps one option for me would be to do global diversification up until the minimum amount ($100k in the case of a joint account). It won't scale in the long term (I'm talking 30+ years), but I guess it is better than nothing (and who knows, maybe tax laws will be completely different by then) :-) I welcome any thoughts you may have.

[JonathanGiles]

Jonathan, you must beware of other issues with US ETFs. The main one is death duty tax is liable on any holding over $60000 for non US residents. This is why you need to look a non US domiciled ETfs. Some investors buy on the UK stock excahnge where these ETFs are domiciled in Ireland. However, Vanguard has just launched a new global one that is australian domiciled, VGS, with an MER of 0.18%. Dividends can be reinvested.
About the FIF regime try not to make investment decisions based on taxation but focus on long term returns.

Voltage - one way around this is to invest via a family trust (which I do have lying around) - that way the death duty tax isn't applied upon the death of my spouse and I - instead it is related to the trust which endures beyond our lives.

I agree on the "don't make decisions on tax law" (I think I said it sometime today too) - but I think in this case if we ignore tax law we may be indeed impacting on our long term returns. In this case, the current NZ tax law, I believe, effectively reduces the annual capital gain on shares (can you tell I'm not an accountant - I'm sure I'm using the incorrect terminology) by 1.6%. Therefore, if we make 7%, we should reduce that to 5.4%. If SmartShares makes 7%, we should reduce that by 0.75% to 6.25%. At least, that is my understanding - and if correct - is quite substantial.

[Kaspar]

Yep the FIF tax completely put me off international investments via ETFs. I tried to sell it to myself by thinking of the diversification, low fees etc, but after a lot of thought and running through a few scenarios I decided it wasn't worth the hassle and extra compliance costs. I figure my KiwiSaver dough is in a growth fund made up of international shares so I do have some exposure to overseas markets, but it doesn't change the fact that I'm still heavily skewed to the Australasian market which is not ideal. Hopefully they change the rules one day but in the mean time I can't be bothered pissing around with that ridiculous tax.

[voltage]

These are valid points however we cannot ignore the fact that US makes up 50% of the world market. I am 40% weighted into asx shares which have significantly underperformed in recent years. NZX is a minnow by world standards. Also much of the research shows most fund managers and us, as active stock pickers, are very unlikely to outperform the index long term. The answer is to use global ETFs, but as indicated above this is a difficult exercise from NZ. There is no simple answer at this stage.

[JonathanGiles]

Hi all.

Today I came across SuperLife who seem to have some interesting passive funds with low(ish) fees at 0.35% for overseas share funds. The 0.35% is made up of 0.20% administration and 0.15% investment managers fees. They provide a very interesting product...but what I don't understand is how their funds are taxed. I can appreciate that with direct FIF investments I do not pay any PIE tax, but I do pay the FIF tax. When it comes to NZ-based PIE funds like what SuperLife offer, I don't understand the implications of FIF and PIE. I would presume that the fund internally covers the FIF taxes, but I don't understand the repercussions on me. I know I will pay the PIE tax at my PIR, but this is on the gross amount returned to me, and I don't understand if the gross amount returned to me is just minus the 0.35% expense ratio, or has also had FIF taxes removed from it.

In other words, given two equivalent investments in two equivalent funds, one directly investing overseas and incurring FIF taxes, and one investing via a NZ-based PIE scheme, would one expect near-equivalent returns, or is the net return of the NZ-based PIE scheme necessarily lower?

Does anyone have any clarity on this issue?
Thanks!

[JonathanGiles]

Some interesting links:

http://iisolutions.co.nz/wp-content/uploads/Shares-FIF-v-PIE-for-global-shares.pdf
And a follow-up to this PDF: http://www.goodreturns.co.nz/article/976501424/tax-rules-on-share-funds-unfair.html

http://www.pascoebarton.co.nz/articles/do-pie-fund%E2%80%99s-pay-too-much-tax
http://milfordasset.com/learn-and-plan/faqspie/

Unfortunately, I'm none the wiser as to what is the better approach! Can someone smarter than me clarify?

[couta1]

I understand that an FIF under 50k is exempt from disclosure rules, but surely if you sell shares for a profit then you would be liable to pay tax in NZ, even if under 50k in value? I'm not talking about dividends from exempt Aussie companies here, but securities listed on the US markets.

[Aaron]

I understand that an FIF under 50k is exempt from disclosure rules, but surely if you sell shares for a profit then you would be liable to pay tax in NZ, even if under 50k in value? I'm not talking about dividends from exempt Aussie companies here, but securities listed on the US markets.

If I understand your question correctly.

The $50,000 threshold is across all FIF investments so you can't avoid it by having separate FIF investments of $49,000. My understanding is that when calculating income on your FIF investments by using the methods available (FDR or CV methods) this is the only income you get taxed on. Dividend income or gains or losses on sale are not included in your income tax return. I could be wrong.

https://www.sharetrader.co.nz/showthread.php?8717-Foreign-Investment-Fund-(FIF)-taxes

Check out this thread. Lizard thinks this is the case and she (I think) always came across as a smart cookie.

If this is correct and you are a successful trader in American shares then the FIF regime is a boon for you from a tax perspective.

On the other hand if you FIF investments are under $50,000 you will return income under the ordinary rules. The dividend income and in the case of a share trader any gains or losses on sale.

[Aaron]

You could try reading this but I don't think it will spell out the answer to your question.
https://www.ird.govt.nz/resources/7/6/766e61804d5325af8370e7057ca1dd2d/ir461.pdf

I guess if you have FIF income you calculate the tax on that using the FIF rules and don't worry about anything else.

[couta1]

Thanks Aaron, it would seem that those with more than 50k in a FIF would pay less tax than those under 50k on a percentage basis, the latter would be paiying at their marginal tax rate. Certainly a mine field to get your head around.

[777]

Thanks Aaron, it would seem that those with more than 50k in a FIF would pay less tax than those under 50k on a percentage basis, the latter would be paiying at their marginal tax rate. Certainly a mine field to get your head around.

Your marginal tax rate would apply in both cases. There is not a separate rate for FIF.

[Aaron]

Thanks Aaron, it would seem that those with more than 50k in a FIF would pay less tax than those under 50k on a percentage basis, the latter would be paiying at their marginal tax rate. Certainly a mine field to get your head around.
The FIF rules work out what to declare as income on your Foreign Investment Funds as 777 said marginal tax rates will depend on individual circumstances.
For example FIF rules would be good if you found a FIF paying a dividend of 10% as you would only declare income of 5% of the opening value (1/4/20**) of your FIF each year. Although interest rate suppression by central banks would make this sort of yield almost unthinkable. I was going to suggest an example of a successful sharetrader but then I would need to understand clearly the quick sale adjustment rules which I don't. it is probably not that hard once you get a grasp of it but I have never needed to use it so am not sure exactly how this is done. Could be a nightmare for someone buying and selling regularly within a financial year.

[kiwico]

Given NZ$50k is only about US$34k now and dropping it is becoming much easier to be caught by the FIF regime if you hold any overseas company (or any Oz company with stapled securities and/or doesn't pay a franking credit).

If held in a company I understand the $50k limit doesn't apply with tax charged on a flat 5% of your FIF holdings. If in your own name then you pay tax on the lesser of 5% of your FIF holdings and the gain in capital / dividends received. I don't have a trust and so haven't followed what applies to such a structure. FIF tax is not payable on the first year of ownership (April to March) if the shares are not sold (but buying and selling share in any year does make things more complicated).

I find it is an annoyance but doesn't make that much of a difference. If the current market continues then tax on 5% of my holdings will be a small price to pay for the gains received. But please all of this with a pinch of salt as I an not an account.

Having previously missed a large increase in a number of shares I held but sold to try to avoid FIF tax I now just hold and pay the tax. I do still try to make purchases near the beginning of the tax year rather than the end (all other things being equal).