Revenue Account Method: Government’s opening move or missed opportunity?

By Joe Sothcott & Sam Mathews

The Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill (the Bill) was introduced late last month, and as previously announced by the Minister of Revenue, one of the headline features of the Bill was the introduction of the Revenue Account Method (RAM) to the Foreign Investment Fund (FIF) rules. The RAM specifically targets recent migrants to New Zealand as well as some returning expats. This article explores the mechanics of the RAM, which is proposed to take effect retrospectively from 1 April 2025.

Issues

In our February and April 2025 articles, we outlined the policy rationale for introducing the RAM into the FIF regime. This article focuses on the practical mechanics of the RAM, as proposed in the Bill, and does not revisit the broader FIF framework. That said, it is important to keep in mind the RAM is designed to address three issues faced by migrants under the current FIF rules:

1. Liquidity Constraints: Tax is often imposed on deemed income from illiquid assets (e.g., unlisted shares), creating cashflow challenges in funding the tax liability.
2. Double Taxation Risk: Because FIF tax is based on deemed income rather than actual realisation, it may not qualify for foreign tax credits in the investor’s home jurisdiction (e.g., the U.S.), potentially resulting in double taxation.
3. Valuation Difficulties: Existing FIF methods often require market valuations on entry to the FIF rules, which can be costly or impractical—especially for unlisted shares.

Who can use the RAM

The RAM is targeted at recent migrants and returning New Zealanders who have been non-resident for a significant period. To qualify, an individual must become a New Zealand tax resident on or after 1 April 2024, must not be a transitional resident, and must have been non-resident for at least five consecutive years prior to arrival.

Family trusts may also qualify if the principal settlor meets the same criteria.

What investments qualify

The RAM applies only to foreign shares acquired before the taxpayer becomes a New Zealand resident (including before transitional residence begins). To qualify, the shares must:

• Be unlisted (not traded on any stock exchange);
• Not have a redemption facility at market value; and
• Not derive 80% or more of their value from listed shares or shares with redemption facilities.

For example, an unlisted index fund tracking the S&P 500 would not qualify, as its entire value is derived from listed shares.

Shares acquired through arrangements entered into before becoming a resident (e.g. contractual follow-on investments or shares acquired under certain employee share schemes) may still qualify, even if the acquisition occurs later.

The extended RAM

A special provision known as the extended RAM allows broader access for individuals taxed in another country based on citizenship or permanent residency, rather than tax residence. This is primarily aimed at US citizens and Green Card holders, but could also apply to individuals from other jurisdictions with similar tax systems. If eligible, the taxpayer may apply the RAM to all foreign shares, including listed shares and those with redemption facilities.

To qualify for the extended RAM, the taxpayer must be subject to foreign tax on the disposal of shares due to citizenship or residency status, there must be concurrent taxation (i.e., both countries broadly tax the same income even if there is a special exemption regime in that other country for a particular sale of their shares), and New Zealand must have a double tax agreement (DTA) with the foreign country (noting New Zealand does have a DTA with the US).

How the RAM calculation works

Under the RAM, realised gains on the disposal of eligible FIF interests are discounted by 30% before being taxed. Only 70% of the gain is included in taxable income and taxed at the taxpayer’s marginal rate. Losses can only offset gains from other RAM-applied disposals, and excess losses may be carried forward.

Dividends are taxed in full at the marginal rate, without any discount.

Example: A taxpayer receives a $500 dividend and sells an eligible FIF interest for a $10,000 gain. With a marginal tax rate of 39%, the taxable income is $500 + ($10,000 × 70%) = $7,500. The resulting tax liability is $7,500 × 39% = $2,925.

Electing into the RAM

The RAM is elective, and the election must be made in the first income year in which the taxpayer becomes eligible and the FIF rules apply. Once elected, RAM applies to all eligible shares held by the taxpayer (i.e. on a portfolio basis). FIF interests that do not qualify must be taxed under one of the other FIF methods.

Taxpayers may opt out of the RAM, but once they do, they cannot re-enter the regime in future years. If they do, a deemed realisation event arises.

Determining the cost base

The cost base is the starting point for calculating gains or losses under the RAM. The default method is to use the market value of the share on the date the RAM is first applied. The valuation must be completed by the later of:

• 12 months from the date of acquisition or the date the FIF rules begin to apply; or
• The due date of the taxpayer’s first income tax return in which the RAM is applied.

Recognising the difficulties of valuing unlisted shares, Inland Revenue offers an alternative: time-based apportionment. This method is available if a valuation can only be obtained through an independent valuer and the taxpayer chooses not to obtain one. Under this approach, the total gain or loss is spread evenly over the holding period, and only the portion attributable to the period during which the taxpayer was a New Zealand tax resident (excluding transitional residence) is taxed.

There are particular rules that can apply to adjust the cost base where a person who previously applied the RAM has left and then returned to New Zealand.

Deferred realisation tax

A deemed disposal occurs when a taxpayer leaves New Zealand. For tax purposes, all RAM-eligible shares are treated as sold at market value, and any gains or losses are taxed. However, this deemed disposal is disregarded if the shares are not sold within three years of departure or if the taxpayer returns to New Zealand within that period without selling the interests.

Losing Eligibility

Deemed disposals also occur if the taxpayer opts out of the RAM, or if a share loses eligibility—for example, by becoming listed. When a taxpayer exits the extended RAM, any shares not eligible under the standard RAM rules are also deemed to be disposed of.

Deloitte’s view

Deloitte supports the introduction of the RAM as a positive (baby) step toward amending the FIF rules to lower the tax barriers for migrants and returning expats to come to and stay in New Zealand. However, in its current form, we think RAM is too narrowly targeted to achieve this and the Government’s broader goal of encouraging investment in New Zealand.

Limiting eligibility to recent migrants and excluding listed shares means only a small group can benefit, and even those that can may face increased compliance costs to do so. There is a much wider population that we should want to remove the tax barrier to living in New Zealand for, including migrants that moved to New Zealand before the eligibility date, expats who might not have met the five-year non-resident test, as well as ordinary New Zealanders who might be weighing up their next moves.

Deloitte believes that all New Zealand tax residents should also be able to opt in and it should be available for all shares (including listed shares) - especially since RAM, even with its 30% discount, is likely to generate more revenue for the Government than current FIF methods over time, albeit deferred to a realisation event.

For example, an investor who invested $100,000 in an exchange traded fund that tracked the S&P 500 five years ago would face a tax liability of around $13,000 under the Fair Dividend Rate (FDR) method, compared to approximately $30,000 under RAM. This pattern holds even with more modest returns, given that global equity markets typically outperform the maximum 5% FDR rate.

Narrowing the eligibility rules, both in terms of who the rules apply to and what shares the rules apply to, and prescriptive entry rules also results in unnecessary complexity in the rules, including to cover scenarios where investors or shares lose eligibility.

Other potential issues with the proposed rules include:

• A 30% discount can result in a higher effective tax rate than the rate a number of comparable countries would impose on their residents;
• The rules do not appear to apply to FIF interests that are held via controlled foreign companies (CFCs), which is a common structure for migrants;
• The RAM calculations are performed in NZD, meaning those applying the rules will need to calculate gains/losses in NZD and therefore be subject to NZD foreign exchange movements (with a different calculation potentially required in the person’s home country, potentially resulting in double taxation issues);
• The election requirements appear to imply that the RAM cannot be accessed if the first New Zealand tax return is filed late; and
•  The application date of the rules require taxpayers to prepare their 2025 tax returns under existing FIF methods (noting that, depending on the circumstances, there may not actually be any FIF income in this period) and then potentially move to the RAM for the 2026 and later income years.

Deloitte recommends expanding RAM to include New Zealand residents and listed shares, and addressing other key tax barriers such as the financial arrangement (FA) and CFC rules. We also support reviewing the outdated $50,000 de minimis threshold (unchanged since 2000) and broadening access to the attributable FIF income method, which applies an active income exemption to certain foreign investments. Changes to these areas are key to removing the potential New Zealand tax barriers.

While the proposed changes to the FIF rules in the Bill might be a useful option for certain people in certain circumstances, they, put bluntly, do not go far enough, or quickly enough, to materially impact the stated policy intent. We would encourage those that may be impacted by the rules, or are currently not covered by the rules and feel they should be, to submit on the proposals in the Bill to ensure their voices are heard.

Next Steps

The RAM proposals are detailed and this article does not cover every aspect. If you have questions or would like to discuss the proposals, please contact your usual Deloitte advisor.