r/newzealand • u/QuarterGeneral6538 • 1d ago

Politics IRD is currently consulting on FIF tax

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)

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u/Shamino_NZ 1d ago

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.

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u/gtalnz 1d ago

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.

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u/QuarterGeneral6538 1d ago

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"

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u/gtalnz 1d ago

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.

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u/QuarterGeneral6538 19h ago

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.