Investment Tax Changes Effective 1st April 2007

The New Zealand Government has announced a number of significant tax changes that will affect investments and investment portfolio construction. Briefly these are:

Removal of Grey List Countries
Removal of the Grey List countries with the exception of Australia.

New Zealand and Australian shares and managed funds exempt capital gains tax
Australian equities will be considered domestic rather than international investments and will be exempt capital gains tax for non-trading investors.

Note the dividends on Australian shares are taxed at 30% and the "franking credits" cannot be offset against your New Zealand tax liability.

Fair Dividend Rate Method
Under the de-minimis rules individual investors are exempt if they hold less than $50,000 (original investment value) in investments outside New Zealand (Australian direct share investments and investments held in PIE entities are exempt).  This exemption does not apply to investments held by Family Trusts.

For investments falling under the FDR rules the investment return (capital and income) will be taxed on the first 5% at the investors marginal tax rate up to a maximum tax rate of 33% (reducing to 30% effective April 2008).  The tax is paid by the individual and provisional tax rules apply.

Portfolio Investment Entity (PIE)
For investments through NZ registered fund managers registered as PIE entities the investment return (capital and income) will be taxed on the first 5% at the investors marginal tax rate up to a maximum tax rate of 33% (reducing to 30% effective April 2008).  The tax is paid by the fund manager no tax liability to the individual and no tax return required.