Taxpayers with overseas investments could find compliance simpler under proposed changes to the foreign investment fund (FIF) rules, including a higher exemption threshold and more flexibility in calculating FIF income.

The Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill, introduced on 10 September 2026, aims to reduce compliance costs and address difficulties faced by certain investors.

What would the changes mean for taxpayers and their advisers?

De minimis threshold to double

The Bill proposes to increase the FIF de minimis threshold from $50,000 to $100,000, potentially taking more individual investors outside the FIF rules.

The threshold generally applies to the total cost of relevant FIF interests, rather than their current market value.

For example, an eligible investor holding overseas shares costing $80,000 that are now worth $120,000 could remain outside the FIF rules, provided the other requirements are met.

The Bill would also amend the four-year look-back rules for taxpayers who previously elected to apply the FIF rules despite qualifying for the de minimis exemption. The threshold applicable in each earlier income year would be used when applying the test.

Wider access to the revenue account method

The revenue account method (RAM) is another significant area of reform, particularly for investors holding shares in unlisted overseas companies.

Under the commonly used fair dividend rate (FDR) method, FIF income is generally calculated as 5% of an investment's opening market value. Tax can therefore arise even when no dividends are received or shares sold.

This can be difficult for investors in private companies or start-ups, where shares may be hard to value or sell.

The RAM instead generally taxes dividends and 70% of realised gains on disposal, rather than deemed annual income. It was introduced from 1 April 2025 for certain migrants and returning New Zealanders.

The Bill would extend RAM to natural persons and eligible trustees holding qualifying unlisted foreign shares, removing the current restriction based on when an individual arrived in New Zealand.

Other eligibility and election requirements would continue to apply.

It would also widen access to the extended RAM for qualifying taxpayers subject to overseas taxation because of citizenship or a right to work in another country. This could be relevant to certain US citizens and Green Card holders. Unlike standard RAM, extended RAM may cover qualifying listed and unlisted foreign shares.

The Bill also proposes a five-year consistency rule. Taxpayers electing into RAM would generally need to remain in the method for five consecutive income years before opting out, then remain outside RAM for five consecutive years before opting back in.

More flexibility for founders and active investors

The Bill proposes changes to the attributable FIF income (AFI) method, which can be used by certain investors with substantial interests in foreign companies.

Currently, access generally requires an ownership interest of at least 10%. This can create difficulties for founders and early investors whose interests fall below that level as their companies raise capital.

The amendment would allow qualifying investors to continue using AFI despite their ownership falling below 10%.

Eligibility would depend on their ownership and AFI position in the preceding accounting period, continued active involvement throughout the current accounting period and access to information needed to calculate attributable FIF income. Qualifying trustees may also be eligible.

Changes to the 10-year FIF exemption

Another proposal concerns the 10-year FIF exemption available to qualifying New Zealand shareholders when a New Zealand business comes under overseas ownership.

The exemption can be affected by corporate reorganisations associated with offshore listings, particularly those involving listed special purpose acquisition companies (SPACs).

The proposed changes would address ownership continuity issues arising from certain listing structures, so otherwise eligible shareholders are not denied the exemption solely because of the listing method. Existing requirements would still apply.

Other technical changes

The Bill would provide greater flexibility for indirect FIF interests held through controlled foreign companies and allow the cost method for qualifying investments without readily available market values, alongside FDR or comparative value methods for other investments.

It would also extend the RAM exit tax rules to taxpayers who become non-resident under a double tax agreement while remaining New Zealand residents under domestic law.

For tax practitioners, the proposals provide an opportunity to review clients' overseas investments, particularly unlisted shareholdings, interests in growing foreign businesses and investments held by taxpayers with overseas tax obligations.

While the changes could reduce compliance costs or improve cashflow outcomes for some investors, eligibility conditions, election restrictions and the timing of taxable income will need careful consideration.

Most of the proposed FIF changes would apply from 1 April 2026, with the RAM exit tax amendment taking effect from 1 April 2027. All changes remain subject to the Bill being enacted next year.