Are you the kind of person who cringes at “ATM machine” or “PIN number”? Now there’s “the RAM method.”

The Revenue Account Method (RAM) is a proposed fix for a long-standing headache in NZ’s Foreign Investment Fund (FIF) rules. These rules make sure NZ tax residents pay tax on offshore investments. 

Instead of taxing the cash you actually receive (like dividends), FIF rules pretend you’ve earned income based on share values. 

That’s fine if you own listed shares with clear market values. But it’s more complicated for unlisted shares, which may be hard to value and harder to sell. So you could end up paying tax on artificial income, but without the cash to pay it.

Enter the RAM. 

RAM is available if:

• You acquired unlisted foreign shares (that can’t be redeemed for market value) at least five years before becoming NZ tax resident, and
• You became resident after 1 April 2024.

There’s also “extended RAM”, which applies to all your shareholdings if you’re taxed based on citizenship (meaning Americans). 

How does it work?

Instead of taxing deemed income every year, RAM only taxes you when you realise cash from share sales or dividends. Even better, only 70% of the gain is taxable.

Is it better? Not necessarily. 

Here’s an example. Say you hold shares worth $50,000 on 1 April, which you sell later that year for $60,000.

Under the standard FIF rules, you’d pay tax on $2,500 of income (5% of $50,000), but under RAM, you’d be taxed on $7,000 (70% of the $10,000 gain). 

While RAM taxes you only when you sell, which can help with cash flow, the trade-off is that the more your investment grows, the more tax you’ll pay under RAM.

So, does the RAM help? It depends. It’s simpler and delays payment of tax, but could cost more overall. It may also allow you to claim foreign tax credits for the NZ tax against tax paid on foreign capital gains (generally not possible under the standard FIF rules). This is generally only a benefit NZ tax residents who remain subject to tax on capital gains in the United States through holding citizenship or a greencard. If that’s you, you’ll know exactly what I mean. 

The FIF rules are tricky, but that’s where we come in – get in touch to discuss your options.

Alex Cull

Tax Partner, Greenhawk Chartered Accountants

0800 422 526 | [email protected] | greenhawk.co.nz

91 Sir Tim Wallis Drive, Wānaka