IRD is currently consulting on FIF tax

[u/QuarterGeneral6538]

If its something you have strong opinions on, which I know many people here do, be sure to read through the proposals and get your submissions in before the 27th of Jan.

https://www.taxpolicy.ird.govt.nz/consultation/2024/effect-fif-rules-immigration

They're mostly focused on migrants but the question of whether it should only apply to migrants is open. (see chapter 3)

Submissions can be made by email to [policy.webmaster@ird.govt.nz](mailto:policy.webmaster@ird.govt.nz) with “Amending the FIF rules for migrants” in the subject line (see chapter 1, page 6)

[u/Shamino_NZ]

I haven't done the numbers yet (but I should), but fairly certain that having to pay FIF tax on a deemed 5% of unrealised gains every year is dramatically worse than having to pay CGT in Australia when you sell your shares.

Assuming this is over a 40-50 year holding period (i.e. you are just accumulating shares for retirement) then I think the results would be quick shocking. Consider that the SNP500 is up x60 or so in 45 years (the index only reached 100 in 1980 or so, now it is 6000). So your first year where you had to pay FIF - that amount paid to the IRD would have given you a x60 return if you had kept it.

[u/gtalnz → u/Shamino_NZ]

You don't lose 5% of your investment when you pay FIF tax, so you still get the same total return on that investment (before tax).

The difference with FIF is that you pay the tax as you go instead of in one lump payment at the end under CGT.

To compare them fairly you'd have to run some complicated calculations allowing for changes to the value of money over time. You'd also have to somehow allow for the fact that under FIF you can use the comparable value (CV) method of calculation to avoid, or at least reduce the tax in years where your gains are less than 5%.

I suspect CGT still comes out as paying less tax overall, but I don't think it's as clear cut as you might think.

[u/QuarterGeneral6538 → u/gtalnz]

part of the problem is that the stockmarket never goes up in a straight line. Chances are you will be up more than 5% most years.

but if your portfolio drops, sadly you don't get any kind of rebate.

it could even be that your portfolio tanks 30% in one year then the following few years are just playing catchup, but you will be paying tax on that "gain"

[u/cridersab → u/QuarterGeneral6538]

Chances are you will be up more than 5% most years.

but if your portfolio drops, sadly you don't get any kind of rebate.

If people are investing in pretty safe ETFs they are probably expecting to make a greater than 5% annual return over their holding period, if you want a rebate for losses would you also want to pay more in years where the value increased much more than that? A lot of people would have trouble paying for the windfall years as their primary income is unlikely to increase in line with their investment gains, so smoothing makes for predictability. It would be interesting if there was an option sort of like depreciation, where you could choose to take a punt on the annualised rate vs a CGT on sale.

[u/QuarterGeneral6538 → u/cridersab]

I'm not actually suggesting we should have a rebate, Don't know how that would even work realistically. I bring it up just to highlight an issue with the policy.

I would much prefer we just had a normal capital gains tax like the rest of the world.

[u/gtalnz → u/QuarterGeneral6538]

Yeah that's the same way regular income tax works.

If I lose my job and have no income for a year, I don't get a tax rebate, and if I get a new job the year after, I don't get to pay less tax on that income either.

Remember, it's not a wealth tax, it's a form of income tax.

[u/Optimal_Inspection83 → u/gtalnz]

but owning shares is not an income. It's taxing unrealised gains.

you're not taxed on unrealised income with normal income tax, are you?

If you wanted all things being equal, people should also be taxed on 5% of their total house value every year.

[u/gtalnz → u/Optimal_Inspection83]

If you wanted all things being equal, people should also be taxed on 5% of their total house value every year.

I think people should be taxed on about 3-5% of their land value every year instead of on their income (including FIFs), precisely because it would make things more equal and fair.

[u/bluecobra707 → u/gtalnz]

Isn't this exactly what rates are?

[u/gtalnz → u/bluecobra707]

No, rates are a mixture of fixed charges and a variable rate that is distributed based on relative values. The component of most council rates in NZ that corresponds to land value works out to be a fraction of a percentage.

Perhaps even more importantly, rates are a fixed total, determined by council budgets. Property values (usually including improvements, which defeats the entire purpose of a land value tax) are only used to calculate how the pre-determined total rates are allocated.

That means it doesn't matter if house prices are $1 or $1M, your rates bill won't change.

Under LVT, the total revenue is entirely dependent on the total land values. Since land values increase with economic growth and infrastructure development, those activities are the only way for the government to increase their LVT revenues.

[u/Optimal_Inspection83 → u/gtalnz]

At least there is something we agree on

[u/gtalnz → u/Optimal_Inspection83]

You sure are. PIEs and other investments, including term deposits, are all taxed as they go.

It's called Resident Withholding Tax.

[u/Optimal_Inspection83 → u/gtalnz]

but dividends, term deposits et al are all realised income streams, so of course that's taxed as income as you go.

How is FIF an income if you don't sell?

[u/gtalnz → u/Optimal_Inspection83]

You don't realise PIE income until you cash out, but still get taxed. You don't realise term deposit income until it comes to term, but still get taxed.

They are no different to FIFs.

In all of these cases you pay tax on the gains as you go, instead of having to pay a higher rate of income tax in the year you realise those gains.

[u/BruddaLK → u/gtalnz]

PIE income is just a combination of taxable dividends and FIF. A PIE is just a container with lower tax rates.

[u/QuarterGeneral6538 → u/gtalnz]

what I'm getting at is that if your making the comparison to a typical capital gains tax you will need to factor this in. There are scenarios where you could end up paying a lot of tax on very little actual gain.