If you hold overseas shares as a New Zealand tax resident and you're over the de minimis threshold, you usually can't just tax the dividends and the gains. Instead you calculate a notional FIF income, and there are two main ways to do it: the Fair Dividend Rate (FDR) and the Comparative Value (CV) method.
The two methods at a glance
Both methods turn your foreign shareholding into a single income figure you declare on your IR3. They just measure it differently:
- FDR assumes a flat 5% return on the market value you held at the start of the tax year.
- CV measures what actually happened: closing value plus what you took out, minus opening value plus what you put in.
💡 Good to know: for most individual investors, the law lets you use whichever method gives the lower income, and you can pick per year. The calculator runs both and chooses for you.
How the Fair Dividend Rate works
FDR takes the market value of your shares on 1 April and multiplies it by 5%. That's your FIF income, whether the shares actually rose, fell, or paid a dividend. There's an extra quick-sale adjustment if you bought and sold the same holding within the year.
How Comparative Value works
CV compares where you started with where you finished:
| Component | Amount |
|---|---|
| Closing market value (31 Mar) | $11,800 |
| + Gains / withdrawals during year | $420 |
| - Opening market value (1 Apr) | $10,000 |
| - Costs / purchases during year | $0 |
| = CV income | $2,220 |
⚠️ Watch out: in a strong market year, CV can be much higher than FDR's flat 5%. In a flat or down year it can be lower, sometimes zero. That's exactly why the choice matters.
When you're allowed to choose
Most individual investors using FDR can elect CV instead where it produces a lower result, applied consistently across the whole portfolio for that year. There are exceptions for certain investments and entities, so when in doubt, check IR461 or your accountant.
A worked example
Say you held US shares worth $10,000 NZD on 1 April. By 31 March they're worth $11,800 and paid no dividend. Here's both methods side by side:
| Method | FIF income |
|---|---|
| FDR: 5% × $10,000 opening | $500 |
| CV: $11,800 - $10,000 | $1,800 |
| Declare the lower | $500 (FDR) |
Here FDR wins comfortably. Flip the market so the shares fall to $9,000, and CV gives you $0 while FDR still charges 5% of opening value, so this time CV wins. Same portfolio, opposite answer, depending on the year.
Key takeaways
- FDR taxes a flat 5% of your opening market value; CV taxes the actual change in value.
- Most investors can use whichever is lower, chosen per tax year across the whole portfolio.
- FDR usually wins in strong years; CV wins in flat or down years.
- The calculator computes both and selects the lower one automatically.
This guide is general information, not tax advice. Always verify figures against IR461 and your year-end statements, and check anything important with a qualified NZ accountant before filing.