Watts loosens tax noose on foreign investments

Local investors can look forward to keeping more of their international investments as the government lifts the amount people need to invest overseas before being hit by the foreign investment fund tax.

Revenue minister Simon Watts announced a de minimis threshold of $100,000 for the FIF regime – twice that of the existing $50,000 level that’s been in place since 2000 – to bring it broadly in line with the pace of inflation over the past 25 years. He also extended the calculation used for recent migrants to all New Zealand taxpayers, meaning they only pay tax on realised gains and actual dividends.

Under the existing regime, the government generally collects tax on a person’s overseas portfolio when they’ve invested $50,000 offshore in total, collecting a deemed 5% return on the portfolio’s value at the start of the year – irrespective of whether any gains are realised – or the actual gain if it’s lower.

“These changes will make it simpler and fairer for Kiwis to invest offshore, reduce surprise tax bills and decrease compliance costs,” Watts said in a statement as part of the government’s rolling maul of budget announcements.

The changes are to see the government forgo about $17 million in FIF taxes a year, and Inland Revenue Department figures showed 129,010 people declared overseas income in the March 2025 year, with 36,400 of those paying tax on FIF income, with an average bill of $5,800. That was up from 112,980 people with overseas income in the March 2023 year, of whom 18,840 paid FIF tax for an average of $2,900.

Inflation creep

The tax department held a targeted round of consultation on the FIF regime earlier this year, with the likes of Deloitte and the Chartered Accountants Australia and New Zealand pushing for an increase to at least keep up with inflation, with regular adjustments built in to avoid repeating the mistake of the original regime.

The explosion of trading platforms opening up global investment opportunities to an ever-larger audience of retail investors had captured more people in the regime, with local leader Sharesies seeing more of its 1 million users paying FIF tax with more than three-quarters of its trading volumes typically heading overseas.

Watts’ tweak to the FIF regime was just one in a suite of budget announcements as finance minister Nicola Willis flagged an earlier return to an operating surplus than previously thought, with predictions for the Middle East conflict and subsequent energy shock seen as delaying the economic recovery before growth accelerates in coming years.

The Treasury acknowledged the high degree of uncertainty of its forecasts, much like the Reserve Bank had in this week’s monetary policy statement, when governor Anna Breman’s casting vote broke the deadlock of the committee to keep the official cash rate at 2.25%.

Ticking timebomb

Willis announced increased contributions to the New Zealand Superannuation Fund as the entity set up to help smooth the pension bill of the Baby Boomer generation lowered its assumption of long-term expected returns by 0.6 of a percentage point to 7.2%, meaning the legislated formula required the government to chip in more.

Willis said the government would contribute $3.1 billion over the next four years, $2.2 billion more than predicted in the December half-year forecasts.

“This reflects their view that, with global equity markets at historically high levels, future returns will likely be weaker compared to recent years,” she said in a statement. “Withdrawals from the Super Fund are now expected from 2054 onwards to help meet the future costs of New Zealand superannuation.”

The nation’s pension bill remains the single biggest cost to the Crown, with $23.19 billion paid to 928,000 superannuitants in the June 2025 year. That’s forecast to rise to $31.21 billion for 1.08 million pensioners by the June 2030 year.

Reporting by Paul McBeth. Image from Curious News.