Earlier this year, the revenue account method (RAM) was introduced as a new foreign investment fund (FIF) income calculation method for new and recent migrants, with effect from 1 April 2025.
The Government subsequently announced a proposal to extend the RAM to all New Zealand tax residents from 1 April 2026. As taxpayers wait to see the details of the proposal in the upcoming 2026 tax bill, questions remain about how the proposal will operate.
The revenue account method
The RAM effectively operates as a capital gains tax on realised gains from FIF interests, subject to a 30% discount, while also taxing dividends in full. Access to the RAM was initially limited to certain new and recent migrants. The intention was to prevent the FIF rules from being a barrier to new migrants. It was perceived that these migrants may be dissuaded by New Zealand’s unique approach to taxing foreign investments, but may be broadly accustomed to some form of realisation-based capital gains tax.
From an early stage in the development of the RAM, the IRD contemplated making the new method available to a wider group of taxpayers. In May 2026, the Government announced a proposal to extend the RAM to all New Zealand tax residents from 1 April 2026. Details of the broader RAM are expected in the upcoming 2026 tax bill.
The proposal to extend the RAM to all taxpayers raises a number of questions. These include how trusts will be treated, how taxpayers might transition from current FIF tax methods to the RAM, and how FIFs held through foreign companies will be treated. Below we highlight several of those questions and issues, in anticipation of the detail in the upcoming tax bill.
How will wider availability of the revenue account method impact trusts?
In its current form, the RAM is available to certain recent and new migrant individuals who fully entered the New Zealand tax base after 1 April 2024. The RAM is also available to a limited class of family trusts. Among other requirements, the trust must have a principal settlor who is an individual that can apply the RAM themselves.
If the RAM is extended to all New Zealand tax residents, it would be logical for the RAM to also be available to all trusts within the New Zealand tax base, regardless of who settled the trust. Whether the upcoming bill removes the current requirement for a trust to be principally settled by a RAM-eligible taxpayer, and whether any further requirements are imposed, will be important.
Currently, a trust is eligible for the “extended RAM” (broadly, RAM for both unlisted and listed FIFs) while its principal settlor is an “extended RAM taxpayer” (in most cases, a taxpayer who is a US citizen). Linking a trust to an extended RAM taxpayer will remain important even if the RAM is more widely available. However, the principal settlor concept may be too narrow and could exclude some trusts that should in principle be allowed access to the extended RAM. A common example in practice is that of a foreign trust established by a US resident parent for the benefit of a New Zealand resident child who is also a US citizen. Upon the passing of the US resident parent, the child may be inclined to treat the trust as a complying trust that is subject to tax in New Zealand. However, as the child is not the principal settlor of the trust, the extended RAM would not be available to the trust under current settings. This is despite the income of the trust being ultimately attributable to an extended RAM taxpayer. A broader link between an extended RAM taxpayer and a trust may be more appropriate.
How do you transition to the revenue account method?
There are questions around transitioning from existing FIF calculation methods to the RAM, if the RAM is expanded to all New Zealand tax residents. Under the current rules, the RAM is only applicable to interests acquired prior to a person becoming New Zealand tax resident or transitional resident, and generally must be applied from the first income year that the FIF rules apply. After having applied the RAM, a taxpayer can switch to another FIF calculation method; however doing so results in a deemed disposal under the RAM and that switch is irrevocable. There is a limited class of taxpayers who were required to adopt another FIF calculation method before the RAM became available to them (e.g., a person whose transitional residence expired in the 2025 income year).
With the RAM being extended to a wider class of taxpayers who may have applied a FIF calculation method previously, the rules governing transition to the RAM from other methods will become more significant. Under the current rules, a taxpayer may only elect to change from another calculation method to the RAM for a given FIF interest if they have previously applied the RAM to each of their existing FIF interests that qualify for the method. Any subsequent change out of the RAM to another calculation method is irrevocable for all future income years. In practice, these provisions require a taxpayer to decide whether to apply the RAM for a given FIF interest in the year in which it first qualifies for the RAM. If the taxpayer decides not to apply the RAM, they are then unable to change to apply the RAM for any other existing FIF interests that subsequently qualify for the RAM. It is unclear whether these restrictions remain appropriate in the context of wider availability of the RAM, where taxpayers may have existing FIF interests that become eligible for the RAM. The present rules essentially require taxpayers to make a permanent decision as to whether or not they will be able to use the RAM for a qualifying FIF interest within the income year in which the interest first qualifies. Any provisions in the upcoming bill in this regard will likely impact the timing of taxpayers’ choices to elect to use the RAM.
foreign investment fund interests held through a controlled foreign company
New Zealand’s controlled foreign company (CFC) rules operate to attribute passive income of foreign companies that are controlled by New Zealand residents to those controlling New Zealand residents. Where a FIF is held through a CFC, the shareholder of the CFC can be taxed on FIF income as if they held the FIF directly. The range of FIF income calculation methods available in these circumstances is restricted. The RAM in its current form cannot be applied to a FIF held through a CFC.
It is useful by way of background to outline the treatment of FIFs held through CFCs. Currently, the FDR method is essentially mandatory for FIFs held through a CFC. The FDR method gives rise to deemed income equal to 5% of the market value of the FIF interest at the start of the tax year. The CV method is not available for FIFs held through a CFC.
The IRD has historically justified this limitation on the basis that holding a FIF interest through a CFC is fundamentally different to direct holding. The argument is that an underlying investor would typically have little control as to when dividends are paid on directly held FIF interests, but where a CFC is interposed, the investor could determine when such dividends are passed out of the CFC. The IRD declined to provide further commentary on the issue in its consideration of the RAM, maintaining that a CFC should not be eligible to apply the RAM for reason of consistency with the prior approach taken in respect of the CV method1.
There is also a more fundamental issue where FIF interests are held through a CFC, as two layers of tax are applied to the same underlying income. One layer of tax is applied through the FIF rules, treating the shareholder of the CFC as having FIF income from the FIF held by the CFC. A second layer of tax is imposed on dividends paid by the CFC, which may consist of gains from the FIF investment itself. Double tax is partially mitigated by allowing the shareholder a credit for tax paid on the FIF income against tax payable on the dividend. However, separately taxing the dividend effectively unwinds the “concession” under the FDR method that excludes any gains above the deemed 5% return from tax. A similar issue would likely play out if the RAM were available for a FIF held through a CFC. The 30% discount on gains on disposal could be clawed back if the shareholder of the CFC receives the gain on disposal as a fully taxable dividend from the CFC. This issue, and existing issues with the rules for FIFs held through CFCs, could be alleviated if CFCs were treated as transparent in respect of any underlying FIF. It remains unclear whether these anomalies will be addressed.
If you have any questions about how the proposal to extend the RAM to all taxpayers will impact you, please get in touch with your usual Bell Gully advisor.
1Inland Revenue Departmental Report to the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill at 93-94.
Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
