Should I actively avoid FIF investments?

[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!