The $50,000 Tax Question – Understanding the De Minimis Rule

Many people start their global investing journey in a simple way - buying a few US shares or investing in an ETF. It’s a great first step. But as your portfolio grows, you may come across something called the $50,000 FIF threshold.

This is where things begin to change because of how New Zealand’s tax rules treat foreign investments.

Before getting into what changes, it helps to understand what that $50,000 actually refers to.

Where your investments are held

Not all investments are treated the same. The FIF (Foreign Investment Fund) threshold applies to most foreign investments, but there are some important inclusions and exclusions.

Investments included in the $50,000 threshold:

• Direct shares in foreign companies (like Apple, Tesla, or Microsoft, excluding Australian companies)
• ETFs listed outside of NZ that invest globally (e.g. an S&P 500 ETF listed in Australia)
• Foreign-managed funds that aren’t New Zealand PIEs

Investments excluded from the $50,000 threshold:

• New Zealand shares listed on the NZX
• New Zealand managed funds registered as PIE (including all funds offered by Kernel under our PDS). PIE stands for Portfolio Investment Entity
• Most direct Australian shares
• Personal assets like property or bank accounts

Your cost base

The $50,000 threshold isn’t based on what your investments are worth today. It’s based on your cost base, which refers to the total amount you’ve invested over time. So:

• If you invest $45,000 and it grows to $70,000, you’re still under the threshold
• If you invest $51,000 and markets fall, you’re still over it

This distinction is important, because it determines which set of tax rules apply.

Once your cost base goes above $50,000, even by $1, the de minimis exemption no longer applies. Your investments instead fall under the FIF rules.

This means:

• A different method is used to calculate your taxable income
• You may pay tax even in years where returns are low or negative
• There’s more administration involved

It can feel like a step change, because you’re moving from a simple, dividend-based system to one that uses calculated returns.

Crossing the $50,000 threshold is often a sign your portfolio is growing - which is a good thing. But it also means the way your investments are structured starts to matter more.

Under the FIF rules, tax is no longer based on dividends. Instead, there are two main methods used:

• FDR (Fair Dividend Rate): assumes a 5% annual return, regardless of whether actual return was higher or lower.
• CV (Comparative Value): based on actual changes in value

Note: You can choose which method to use, but you must apply this method to all your direct offshore investments. It’s also important to factor in currency movements in NZD.

While you can manage this tax calculation yourself, this is where many investors find it helpful to get an accountant involved to help manage the added complexity.

If you value ease and efficiency, come tax time; you might want to consider whether NZ-based PIEs could have a role to play in your portfolio. Benefits of PIE funds:

• Tax is capped at 28% regardless of your fund balance because they use your Prescribed Investor Rate (PIR), which may be lower than your withholding tax rate (up to 39%)
• They apply the appropriate tax treatment automatically
• In many PIEs, tax is calculated and paid only when you sell units or otherwise once a year, usually in April. This allows your money to stay fully invested, rather than having tax deducted throughout the year.

The threshold exists as a practical exemption, designed to support investors in the early stages.

For portfolios under $50,000, Inland Revenue allows investors to use the de minimis rule, which keeps tax treatment simple:

• You’re taxed only on dividends you actually receive
• Capital gains are generally not taxed, unless you meet the definition of a trader
• You don’t need to apply more complex calculations

This approach helps reduce compliance costs and makes it easier for people to start investing globally.

Because direct investing can still make sense in some cases - particularly if you want to invest in specific companies or maintain full control over your portfolio.

Understanding what counts towards the $50,000 also gives you more flexibility than you might expect.

For example, you could have $40,000 in direct US shares (counting toward the threshold), and $200,000 in a New Zealand PIE like Kernel’s High Growth fund (which doesn’t count). In this case, you’d still be under the $50,000 threshold for your direct investments.

This is why many investors use a mix of approaches - keeping a smaller direct foreign portfolio while using PIEs for their core investments. This allows you to grow your overall portfolio without necessarily triggering more complex tax rules along the way.

The key is understanding what changes, so you can make decisions with confidence and keep your investing approach aligned with your long-term goals.

Read more about how to build an investment portfolio using index funds

Kernel Wealth Limited is the manager and issuer of the Kernel KiwiSaver Plan and Kernel Funds Scheme. A Product Disclosure Statement is available at Kernel Wealth | Resources & Documents. Investing involves risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time. The information provided should not be relied upon as investment advice or recommendations and should not be considered specific legal, investment or tax advice.