Introduction and scope
A proposal to add a new way of calculating FIF income was covered in Parts One and Two of this article. To recap, the proposal is that a new method, the RAM, be added to existing methods.
The tax implications already characteristic of individuals with portfolio interests in foreign shares have also been addressed in the bill.
Due to the way in which FIF tax is imposed, certain events can arise. Those events include:
- A tax loss is calculated under the RAM, or the Extended RAM.
- A taxpayer departs N.Z., loses tax residency, and subsequently returns to N.Z., re-acquiring N.Z. tax residency.
- A taxpayer moves in or out of the RAM. This might be done voluntarily, or involuntarily, and includes switching from the category of being a RAM taxpayer to an Extended RAM taxpayer and vice-versa.
Part Three now addresses the proposed tax treatment of the above scenarios as set out in the bill.
Treatment of Losses
- Losses from FIF under the RAM or the extended RAM will be able to be pooled and offset within this method of FIF taxation.
- As such, losses will be ringfenced and won’t be available for offset against other income.
- Unutilized losses can be carried forward for offset against future income calculated under the RAM or extended RAM.
Departing and returning to N.Z.
If RAM was elected prior to an individual’s departure from N.Z. and they subsequently return after being non-resident for at least five years, the elected method remains in place.
Example 1: Returning to N.Z. – RAM
