Taxation of investment in New Zealand
What is actually taxed
New Zealand has no general capital gains tax, but investment income is taxed: interest, dividends, PIE income, FIF income, and property gains caught by the bright-line test (two years for residential property acquired on or after 1 July 2024, subject to the main home exclusion). Financial services are GST-exempt, so GST is not a portfolio cost.
The three regimes to know
- Resident withholding tax: deducted from interest and dividends; imputation credits are 28%, so a 39% investor tops up.
- PIE: income taxed at the investor's prescribed investor rate of 10.5%, 17.5% or 28%, capped at 28%. Wrong rates are corrected through the scheme.
- FIF: offshore holdings with total cost over NZD$50,000 fall into the FIF rules. The default fair dividend rate taxes 5% of opening market value, even in a losing year; the comparative value method taxes actual gains. The threshold is measured on cost, not current value.
Worked example
A 39% taxpayer holds offshore shares that cost $60,000 and are now worth $120,000. The $50,000 de minimis is exceeded on cost, so FIF applies. FDR: 5% of $120,000 is $6,000 taxable, tax about $2,340, despite no sale. Through a PIE at 28% the same $6,000 would incur about $1,680. Structure changed the tax, not the investment.
Traps
- Believing no capital gains tax means investments are tax-free.
- Using market value to test the $50,000 threshold.
- Defaulting every client to a 28% prescribed investor rate.
- Forgetting that FIF income can arise with no cash generated to pay it.