NZ tax · Reviewed 2026-05-02
Most NZ ETF investors default to FDR. That's correct in strong-return years, but in flat / down years the Comparative Value method can save several thousand dollars of tax. The annual choice is yours — pick the cheaper one.
The two methods
FDR
Deemed FIF income = 5% × opening market value of the foreign holding (in NZD, on 1 April)[1]. Independent of actual dividends, gains, or losses. Capped at 5% even in big up-years.
Most favourable in: strong-return years (gross return ≥ 5%). The default for most retail investors.
CV
Deemed FIF income = closing value − opening value + distributions − new contributions + withdrawals. Effectively taxes actual NZD gain (realised + unrealised + dividends)[2]. Cannot be negative — if the calc gives a loss, FIF income is zero, but you can't deduct the loss against other income.
Most favourable in: flat / negative years where actual NZD gain is below 5% of opening value.
Worked example
VOO opening value NZ$100,000. NZ$1,500 in dividends received during the year. No new contributions or withdrawals. Investor on the 33% marginal rate. Figures rounded.
| Scenario | Closing value | FDR income | CV income | Cheaper method |
|---|---|---|---|---|
| Strong year (+12%) | NZ$112,000 | NZ$5,000 | NZ$13,500 | FDR |
| Flat year (+2%) | NZ$102,000 | NZ$5,000 | NZ$3,500 | CV |
| Down year (−10%) | NZ$90,000 | NZ$5,000 | NZ$0 (capped) | CV |
In the down year, CV saves NZ$5,000 of taxable income — about NZ$1,650 of tax at 33%. The IR3 lets you make the FDR-vs-CV choice annually for each FIF holding (within the limits in IR461)[3]. Most platforms' annual tax reports compute both for you; check yours before filing.
FAQ
Yes — for individuals using a quick-sale-rule-eligible portfolio, the choice between FDR and CV is made each tax year on the IR3. Some structures (trusts, companies) face additional restrictions; check IR461 or speak to a tax adviser.
CV taxes you on actual gains (including unrealised gains) plus dividends, less opening value. In a strong-return year that figure is much higher than 5% of opening value, so FDR comes out ahead. CV is only cheaper in flat / down / low-return years.
No. FDR deems 5% of opening value as taxable income — your actual tax is then your marginal rate × that 5%. So at a 33% marginal rate, FDR creates an effective annual tax cost of about 1.65% of opening value, regardless of what the fund actually did.