This Foreign Investment Fund calculator (FIF calculator) uses the Comparative Value Method, which is also known as the CV method to calculate the FIF income. Essentially the CV method is formulated by the IRD as [Closing market value + gains] - [opening market value + costs]. Gains are defined by the IRD as “amounts received from holding (includes dividends) or disposing of the attributing interest and foreign withholding tax or other credits”, whilst costs “include the cost of buying your investment(s) plus foreign income tax you are liable to pay and have paid on the FIF income”.
This method is available for use if:
If you calculate using the CV method and you also had a choice of using the FDR method then you cannot claim a loss under this method, and you also cannot claim a loss on the disposal of your investments.
The biggest constraint with using the CV method is if the attributing interest is a share or shares within a foreign company then the use is limited to individuals, eligible trustees (type B), non-ordinary shares and share users under a returning share transfer. On this, the IRD state “It must be used if the attributing interest is a non-ordinary share unless it is not practical to determine the market value at the end of the year.”
Here is an example of how the comparative value, or CV FIF calculation works.
Person A has $100,000 as the 'Opening Market Value ($)' for their portfolio. This is the total of the market values of the share of the foreign investment funds at the beginning of the tax year (1st April). The ‘Closing Market Value ($)’ of the portfolio was $110,000, which is the total of the market values of the share of the foreign investment funds at the end of the tax year (31st March). There was a total of $5,000 worth of ‘Dividends’ received during the year, as well as $10,000 worth of ‘Proceeds from sale of FIFs’, and $1,000 worth of ‘Tax credits’.
The ‘Cost of purchasing FIFs’ in the period was $15,000, and $2,000 worth of ‘Foreign income tax’ was paid, which is foreign tax that does not include New Zealand taxation.
In this example we had $16,000 worth of positive gains via dividends ($5,000), sales ($10,000), and tax credits ($1,000). The example also had $17,000 worth of costs and taxes via the cost of purchasing the FIFS ($15,000) and the foreign income tax ($2,000).
Using the IRD formula of [Closing market value + gains] - [opening market value + costs] we get the following [$110,000 + $16,000] – [$100,000+ $17,000] which equals an income for the period of $9,000. Using the 33% tax rate this brings the tax owing to $2,970.
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Opening Market Value
This is the total of the market values of the share of the foreign investment funds at the beginning of the tax year.
Closing Market Value
This is the total of the market values of the share of the foreign investment funds at the end of the tax year.
Any dividends received during the year
Proceeds from sale of FIFs
This is the income from disposing of any investment funds during the year.
This includes any foreign withholding tax or other credits
Any other gains received
Cost of purchasing FIFs
This is the expenditure on buying any investment funds during the year
Foreign income tax
This is any foreign income tax does not include NZ tax
Any other costs incurred
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