FIF Tax Regime - Any Spreadsheets?

[Snoopy]

If the Macquarie CMT was included under the FIF scheme as originally seemed the case, it is easy to calculate the tax owing - just multiply the balance at 1 April by 5% and multiply by you tax rate (except when total income from overseas investments is less than 5% when you must calculate actual income).

Jessie, the FIF regime has two principal options under which your income may be calculated, for listed investments. These are the fair dividend rate (FDR) and the comparative value method (CV). You can switch between one or the other between income years. However, for any particular income year you must choose one or the other method which must apply over *all* of your FIF investments. The method you have outlined (5% of opening balance times your marginal tax rate) would be the FDR tax assessment.

You are correct in saying that the FDR way of doing things is easier than the CV method. However it isn't quite as straightforward as you make out. You still have to work out the tax paid from interest withheld each month. That's because the tax paid can be offset against the deemed FDR tax assessment. In this particular year (31st March 2007 to 31st March 2008) there has been quite a drop in the NZD:AUD exchange rate of some 10%. Under the CV method this exchange rate gain is counted as 'deemed income'. 10% of the opening balance is clearly greater than the actual gross interest you would have received (unless you put in a large deposit into your CMT after 1st April). That means if your CMT balance was roughly the same between years start and years end, then you would be a fool to use the CV method when the FDR method will give you a lower tax bill. In this instance, if the Macquarie CMT was your *only* FIF qualifying investment I think your point that the FDR is relatively easy to calculate is valid Jessie.

However, the FIF regime applies to *all* of your FIF qualifying investments *collectively as though they were a single investment*. So it may be obvious (in this rare case where the cumulative exchange rate gain is greater at all times than the instantaneous gross interest received) the FDR rate is the way to go for the Macquarie CMT investment in FY2008. But that does not mean you should not use the CV method for FY2008, because that depends on what other FIF investments you have. So in general you would have had to do the CV calculation as well, even on the Macquarie CMT this year, if it had not been exempted..

Under the IRD ruling to exempt it from FIF, initial and final balance and all transactions must be converted into NZ dollars and any increase in value must be taxed. Is this true? If so, this is a bit more of a nightmare to calculate than the FIF system.

If the Macquarie CMT is exempted, and it has been, you only need to declare your interest payments and claim back any withholding tax paid, exactly the same as in previous years. You still have to do the exchange rate conversion on your interest payments. But there is no requirement to include any adjustment to the capital value. The method you are describing Jessie:

"initial and final balance and all transactions must be converted into NZ dollars and any increase in value must be taxed."

is part of the CV method of the FIF regime. It does *not* apply to the Macquarie CMT or any other exempt investment.

SNOOPY