Chartered Accountants Australia and New Zealand (CA ANZ) supports the proposed introduction of a new Revenue Account Method (RAM) for calculating income or loss from certain foreign shareholdings that fall within the foreign investment fund (FIF) rules but says the scope of the measure is too narrow to achieve the Government’s objectives of attracting globally mobile talent and simplifying tax compliance.

In its submission on the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill, CA ANZ notes that the RAM is a positive first step. However, without broader reform, particularly changes to the financial-arrangements rules, the benefits of the new method will remain limited.

A useful start but too narrow in scope

The Bill introduces the RAM as an optional new calculation method for qualifying foreign shares held within the FIF regime. It applies mainly to shares owned by new migrants or returning New Zealanders before they become tax residents.

Eligibility requirements include:

• The investment must be an unlisted share in a foreign company, not other types of FIF interests such as foreign superannuation or life-insurance policies.
• The shares must have been acquired before the person became a New Zealand tax resident, or under a contract entered into before residency.
• The share cannot be listed on a recognised exchange and must not have a redemption facility available at market value.
• The method is available only to natural persons, generally new migrants or returning New Zealanders, who meet the conditions for using the RAM or extended RAM categories. 

It allows qualifying interests to be taxed on a realisation basis, that is, on dividends derived and a proposed 70% of gains or losses on disposal, rather than on an accrual or deemed rate of return basis. Initially, the method will only be available to natural persons who have been non-resident for at least five years before becoming New Zealand tax residents.

CA ANZ supports the introduction of RAM as a starting point only. Over time, it should be extended to all taxpayers and apply to all FIF interests in the nature of shares.

Extending the availability of RAM beyond its initial scope would significantly reduce compliance costs and complexity for taxpayers, particularly those with diverse offshore share portfolios. A broader application would align New Zealand’s approach with international norms, improve fairness across the tax system, and mitigate the liquidity and valuation challenges inherent in the current FIF regime.

It would also encourage voluntary compliance, simplify administration for Inland Revenue, and provide greater certainty for taxpayers who are disproportionately affected by the existing rules.

Financial arrangements rule changes needed

CA ANZ cautions that the new RAM, while positive, is insufficient on its own to achieve the intended policy objectives. To remove disincentives, reform of the financial arrangements rules (Subpart EW) is also required.

The current financial arrangements rules create inconsistencies, particularly for non-residents, and impose compliance burdens that deter foreign individuals from relocating to New Zealand. CA ANZ identifies several key reforms needed to support the policy intent:

• Remove unrealised gains for all taxpayers, including those on the accrual basis.
• Defer foreign exchange recognition until realisation where the financial arrangement is denominated in foreign currency.
• Allow calculations in foreign currency to align with international practice.

Such changes are essential to ensure fairness, reduce complexity, and support the broader objectives of compliance simplification and international competitiveness.

Clarifying the redemption facility test

CA ANZ recommends refining the test for whether a share qualifies as a RAM interest. Clause EX 46B(5)(a)(iv) excludes a share if there is a redemption facility available at market value. CA ANZ argues this should only apply when a shareholder has effective access to a true arm’s-length market value.

It proposes that a share be excluded from RAM only if a redemption facility provides effective access to market value within a reasonable timeframe and volume, and without issuer discretion or pricing formulas that materially understate value. A formal or theoretical facility should not disqualify RAM eligibility.

RAM is intended to relieve cash-flow pressure from illiquid pre-migration holdings, so eligibility should depend on realisable liquidity, not the existence of a clause labelled “redemption”. Under IFRS 13, Level 1 quoted prices in active markets are the benchmark for fair value. Where prices are unobservable or contingent on issuer discretion, the investment is effectively illiquid and RAM should be available.

Allowing late elections for fairness

Under the Bill, a person may elect to use the RAM only in the first year they meet the relevant tests and must continue in subsequent years. CA ANZ recommends giving the Commissioner discretion to approve a late election, recognising that many new migrants or returning residents may not be aware of the complex election requirements.

Providing the Commissioner with discretion to approve a late election is essential for fairness and practical compliance. It ensures that genuine cases of oversight or lack of awareness do not result in disproportionate tax outcomes, maintaining the integrity of the regime while providing administrative flexibility.

A broader reform opportunity

CA ANZ supports the introduction of the RAM as a positive and practical first step toward refreshing and simplifying the FIF rules but stresses that further expansion and complementary reforms are essential. RAM as currently proposed is both narrow in terms of shareholdings covered (broadly unlisted foreign shares held prior to arrival in New Zealand, unless extended RAM available) and the taxpayers able to adopt the method. We would like to see this optional method available to all taxpayers. Modification of the financial arrangements rules is also needed to ensure that all taxpayers are only taxed on realised gains.

The introduction of RAM is an encouraging beginning, but meaningful simplification and fairness will only be achieved through broader,  reform of the FIF and financial arrangement regimes.