FIF De minimis exemption...How does it work?

Hi. I recently started purchasing foreign etfs that are considered FIFs. I want to gain exposure to sectors not well represented in nz/aus such as tech (i.e. apple, google etc), while staying under the 50k exemption limit for the foreseeable future. But I don't think I understand this well enough to achieve that goal just yet.

I've been looking into how the de minimis exemption works but haven't found any info on how buys and sells are treated (I'm not a trader). As I understand it your FIFs must COST less than 50k NZD (inc brokerage) to be exempt. Here is an example of what I mean:
In order of 1,2,3
1. I spend 30k on some FIF, it's value rises to 60k. Total cost remains 30k, qualifies for exemption.
2. I sell 30k of that same FIF, value is now 30k. Total cost is now 0, qualifies for exemption.
3. I spend 49k on a different FIF entity, total value of all FIFs is 79k. Total cost of my FIFs is 49k, qualifies for exemption.

Intuitively I think 3 should not qualify for exemption, given you could just sell some once you make gains to reduce your total (net) cost, allowing you to build a large total FIF value without exceeding 50k of cost. But I haven't been able to find anything that clarifies this. Any gurus out there able to shed some light on this for me? Any assistance is much appreciated :t_up:

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Originally Posted by Monarch

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2. I sell 30k of that same FIF, value is now 30k. Total cost is now 0, qualifies for exemption.
3. I spend 49k on a different FIF entity, total value of all FIFs is 79k. Total cost of my FIFs is 49k, qualifies for exemption.
...

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2. I sell 30k [half] of that same FIF, value is now 30k. Total cost is now 15k, qualifies for exemption.
3. I spend 49k on a different FIF entity, total value of all FIFs is 79k. Total cost of my FIFs is 64k, does not qualify for exemption.

Ah that makes more sense. Thanks for your help. One other thing, if brokerage counts as part of the cost, would any currency exchanges you had to make to purchase the fif count as part of the cost aswell?

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Originally Posted by Monarch

Ah that makes more sense. Thanks for your help. One other thing, if brokerage counts as part of the cost, would any currency exchanges you had to make to purchase the fif count as part of the cost aswell?

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Snow Leppard is correct in the calculation. I don't recall brokerage fees forming as part of the total cost of the share investments. When you submit FIF to IRD every year, you put down the # of shares and at what price you purchased them at. I would assume the same would apply being under the $50K amount (they only look at what the share price was trading at that day * the # of shares purchased).

For IRD, you can use an average rate for exchange rates that IRD provides or you can use actual exchange rates at the day you purchased and sold the shares.

All individuals wanting to invest abroad, such as US equities, should invest directly as the $50K exemption is far more advantageous than investing smaller sums into managed funds like Kiwi Saver or PIE funds. The reason is small amounts under the $50K value invested in these funds end up taxing you at RWT rates within the fund. Also the vast majority of investors starting out won't have $50K to throw at for retirement. Such as in Kiwi Saver, if you were only on $50K/year income, the minimum contribution of 3% + 3% employer matching would be only $3,000 on the 1st year. How many years at $3,000 would it take before you reach the $50K threshold? Meanwhile all those years you've be contributing to will be taxed on the paper gains so it won't have the same compound effect as if you invested directly. Of course it can be argued you miss out on the 3% matching by the employer but I would also say a lot of that 3% is negated by management & administration fees these fund managers charge out.

That clears everything up, thanks :t_up: