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
Hemi grew up in N.Z. but moves abroad in 2015 and later starts working for Company A. Hemi receives shares in Company A, an unlisted company, as part of his salary package. In 2025, Hemi decides to come back to N.Z. Hemi has been a non-resident for more than five years, so he is eligible to apply the RAM to his shares in Company A. He elects the RAM.
In 2030, Hemi leaves N.Z. again. This time to work for Company B. Hemi moves back to N.Z. in 2033. As Hemi was a non-resident for less than five years this second time, Hemi would not be eligible for the RAM with respect to any foreign shares he obtained between 2030 and 2033.
However, his shares in Company A remain eligible for the RAM.
Example 2: Returning to N.Z. – extended RAM
Juan is a US citizen whose family moved to N.Z. when he was young. Juan left New Zealand and became a non-resident in March 2018. He later returned to N.Z. and became a N.Z. resident in May 2024. Before he left N.Z., he obtained several interests (Interests A). During his time overseas, he acquired several new interests (Interests B).
Upon his return in May 2024, Juan is eligible for the extended RAM. This is because he had been a non-resident for over five years and is generally liable to tax on the disposal of shares in another country based on his citizenship.
Juan’s interests from before he became a non-resident (Interests A) would not be eligible for the extended RAM. The interests he acquired while he was a non-resident (Interests B) would be eligible for the extended RAM.
Shortly after his return, Juan had to leave again and became a non-resident in July 2025. This second departure was short-term, and he came back to N.Z. in February 2028. During this second period of absence, Juan obtained further interests in foreign companies (Interests C).
The RAM treatment of his interests from before his second departure is preserved. This means Interests A would remain ineligible for the extended RAM, while Interests B would be eligible for the extended RAM on his return in 2028. Juan’s newly acquired interests (Interests C) would also be eligible for the extended RAM because once he has qualified for the extended RAM, Juan does not lose his eligibility because of a brief subsequent period of non-residence.
Deemed disposals
Deemed disposals might arise due to the actions of the taxpayer (a voluntary disposal), or the foreign company in which the shares are held (involuntary). In addition, the taxpayer’s residency or citizenship might change. The following discussion centres around these events.
- Voluntary
In some cases, it might be tax efficient to elect out of RAM, or Extended RAM, and use another method. This will trigger a deemed disposal on the last day of the N.Z. income year.
Example 3: Electing out of RAM
Vincent has been applying the RAM on all eligible foreign shares. In August 2027, he decides to stop applying the RAM and decides to use the cost method going forward. Vincent has a standard balance date and is deemed to have disposed of his shares at market value on 31
March 2028. He accounts for this in his 2027–28 income tax return.
For his 2028–29 income tax return, Vincent will apply the cost method in accordance with the current rules.
- Involuntary
A share might be listed and disqualify the taxpayer from using the RAM. This would affect RAM taxpayers, but not extended RAM taxpayers, who are able to use the RAM irrespective of whether the shares are listed or not.
Example 4: Share loses eligibility
Lisa owns some shares in a start-up company. The shares in the company are listed on 30 September 2027 and are therefore no longer eligible to be a RAM interest. At the close of the first day’s trading, the market value is $10 per share. Lisa is deemed to have sold her shares for $10 a share on 30 September 2027. From 1 October 2027, Lisa would apply the fair dividend rate method or the comparative value method.
Changing from being an Extended RAM taxpayer to a RAM taxpayer
It will be possible that a taxpayer transitions, involuntarily, from RAM taxpayer status to extended RAM taxpayer status, and vice-versa.
Such situations will occur through the acquisition or cessation of concurrent tax liabilities – in N.Z. and the country of citizenship or other country in which an individual has lawful permanent residence.
Currently, only individuals acquiring or divesting of U.S. permanent residence or U.S. citizenship who are also new migrants to N.Z. could be in this bracket.[1]
A taxpayer who holds shares in a listed companies and becomes no longer subject to tax in another jurisdiction through citizenship or lawful residency changes their status from ‘extended RAM taxpayer’ to ‘RAM taxpayer’.
The taxpayer is deemed to have disposed of the shares if at least of the following conditions are present on the date of change of citizenship or permanent residency:
- the shares were listed,
- the taxpayer can redeem the shares at market value, or
- the share is held in an entity that derives 80% or more of its value from shares that meet one or more of the above characteristics.
Example 5: Transitioning from extended RAM to RAM
Rosa moves to N.Z. in June 2022. Her transitional resident status expires in June 2026 and the FIF rules apply following this expiry. Rosa is a citizen of a country that taxes its citizens on their worldwide income regardless of their residence, which includes a capital gains tax on the disposal of shares. As such, Rosa is eligible for the extended RAM, which she chooses to apply. On 16 February 2028, Rosa completes the formalities necessary for her to give up her citizenship in the other country. The renunciation of her citizenship takes effect on this date.
At the time of the deemed disposal, Rosa held the following foreign shares:
▪ Units in an index fund that she has been routinely investing in since before her migration to N.Z. She has continued her routine investment in this fund since becoming a N.Z. tax resident.
▪ Shares in a foreign business venture, which she got involved in after her migration to N.Z. The company is not listed. The disposal is deemed to occur on 15 February 2028.
The treatment of each type of share is:
▪ Rosa’s investment in the index fund derives more than 80% of its value from listed shares and so does not meet the eligibility rule for the RAM. There would be a deemed disposal of these shares.
▪ Her shares in the unlisted company would remain eligible for the RAM despite the shares being acquired after Rosa became a N.Z. tax resident. There would be no deemed disposal of these shares.
Example 6: Returning to N.Z. – extended RAM to RAM
Xavier, a U.S. citizen, who had lived in N.Z. since 2001 left N.Z. and became a non-resident in March 2018. At the time of his exit Xavier owned several foreign interests (Interests A).
Between April 2018 and April 2024 whilst overseas he bought shares in U.S. companies to expand his investment portfolio (Interests B). He returned to N.Z. and became N.Z. tax resident in May 2024.
Shortly after his return, Xavier has a change of heart and decides to move to Argentina, where it is possible to become a citizen in two years. He becomes non-resident of N.Z. again, in July 2025.
In August 2027, having acquired Argentinian citizenship, Xavier decides to renounce his U.S. citizenship. His renunciation is completed during September 2027.
The new holder of one passport only, an Argentinian passport, Xavier returns to N.Z. in February 2028 to live.
As Argentina imposes income taxes on a residency and source basis, Xavier’s income tax liability extends only to any Argentinian sourced income, from February 2028 onwards.
Xavier is not subject to income tax in Argentina concurrently with income tax in N.Z. since he is non-resident of Argentina.
Between July 2025 and February 2028, Xavier’s second period of absence, he obtained further interests in foreign companies (Interests C).
Xavier’s Interests in A have never been eligible for the RAM and remain ineligible for the RAM because they were acquired while he was a N.Z. resident. As a N.Z. resident who acquired interests in foreign shares, this was before he became eligible for the RAM. This is because an individual must have acquired N.Z. tax residency after 1 April 2024.
Xavier’s Interests B will be eligible to use RAM if all three conditions are met:
- those shares are in unlisted foreign companies,
- no redemption facilities for market value are available,
- they are not in an entity that derives 80% or more of its value from shares that are listed or have a redemption facility for market value.
Xavier’s interests in company C won’t qualify for the RAM, or the Extended RAM as:
- Xavier is no longer subject to tax concurrently and so is ineligible for the Extended RAM.
- Although the shares in Company C were acquired whilst Xavier was non-resident of N.Z. he wasn’t a non-resident of N.Z. for the minimum five-year period. He was non-resident only from July 2025 to February 2028, which is less than three years in duration.
Xavier will need to apply one of the existing FIF income calculation methods upon their return.
There is currently no guidance on transitioning from RAM to Extended RAM. It is reasonable to anticipate that taxpayers acquiring U.S. citizenship or lawful permanent residence will be deemed to acquire shares in listed companies at the date of acquisition of U.S. citizenship or U.S. residence.
Conclusion
The proposed addition of the RAM for qualifying foreign shareholdings is welcomed. It also brings further complexity to an already complex field of N.Z. taxation.
Disclaimer:
The information provided in this blog post reflects current tax laws and regulations as of the date of publication. Any references to proposed rules or legislative changes are for informational purposes only and do not represent final or enacted law. These proposals are subject to change and may not be implemented in their current form. Readers should consult with a qualified tax professional or monitor official IRD guidance for updates before making any financial or tax-related decisions.
[1] Eritrea is the only other country to tax its citizens, however, through a Rehabilitation and Recovery Tax.
