You're listening to a Chase's podcast. We have a lot of companies on Chase's that are US based. Investing there. Things get a little bit different, don't they. With the I think the FAF is the kind of the acronym that's everywhere. If you can explain that for US.
I'll certainly have a go. So the Foreign Investment Fund regime is intended to capture all foreign investments, particularly or traditionally into companies. There is an Australia is actually caught within the context of those rules. However, because of our close economic relationship with Australia and the fact that a lot of New Zealanders invest into Australia, we have what's
called a foreign Investment Investment Fund exemption list. So that typically is entities in Australia that are listed on the Australian Stock Exchange that are resident in Australia. Those companies are included in of an exemption list. What that effectively means is that you don't need to apply the foreign Investment Fund rules to those particular investments. You can just treat them, going to call it as normal investments where you pay tax on dividends as and when they are received.
For everybody else or everywhere else in the world, did a subject to the foreign investment fund rules? What effectively that does is it sort of ignores, if you like, the dividends that are paid, and the investments are taxed on the basis of a number of methods, but in the sense sort of deemed income for tax purposes and for individuals. The two main options there are the fair dividend rate and the comparative value method.
And just to stop you there, Mark, I think you wouldn't be subject to the foreign investment fund unless you were investing fifty thousand New Zealand or you had that in investments or.
Right, it's correct. There's a deminimus, so an exclusion from having to apply these horrendous rules. If you if you, if you hold foreign investment fund interests that cost less than New Zealand fifty thousand dollars, if you are unfortunately fortunate enough to hold investments over that threshold, then you will be subject to these rules and the complications that go that go with that.
So if you had a couple of thousand dollars in Tesla, for example, you'd probably be all right, that's correct, it would only be if you had a fear bit more thinking of that, though surely at that stage you'd begin your advisor to have a lock unless you were real wizard tax.
Yeah, there's not many people that have a go can I use that phrase? It doing it themselves. It's these rules are are incredibly complicated. The method dollar methods that are that are available to people to sort of return their income a tricky and so we do recommend that if you are subject of the Foreign Investment fund rules, that you do seek to get some advice in and around the preparation of your tax position on an annual.
Basis, because could it be that without realizing it, you might actually almost be paying more tax than you're actually getting in a return.
That's correct, you know. So, for example, under the fair dividend rate method, you have a deemed dividend equal to five percent of the opening market value of that investment.
So if you'd bought one thousand dollars of Tesla shares, for example, they were valued at one thousand dollars on the first of April twenty twenty four, then your deemed income for the year will be five percent of that And if the dividend yield coming out of that Tesla stock is you know, around the one one to two percent, which often American companies do tend to have relatively low dividend yields. The actual cash dividend that you receive may be well less than the deemed income that you have
from that investment under the fair dividend rate. There is another methodology that's available to natural persons and trustees of trusts, and that's to use comparative value. And that comparative value methodology effectively seeks to tax you on the unrealized gain
that you've had during the year. So if the shares were worth a thousand dollars at the beginning of the year and they're worth nine hundred and you've made a loss, you have a choice to be able to say, oh, I'll take that comparative value method I'll take that loss, in which case your income under the Foreign Investment fund rules is nil, and you do have the option to choose between years. So yeah, some of it can be
quite complicated. Investing involves risk you might lose the money you start with.
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