FIF Calculator - FDR Method

This Foreign Investment Fund calculator uses the Fair Dividend Method, which is also known as the FDR method to calculate the FIF income.

This method is available for use if:

1. the interest is not attributed to ordinary shares
2. the market value of the investment portfolio is known at the start of the tax income year.

According to the IRD, for the FDR method - "if a person uses the annual method, they will generally be taxed on 5% of the opening market value of their attributing interests in foreign companies. Dividends and capital gains are not usually taxed separately. However, this does not apply to fee rebates, which should be returned as additional income."  

It is also important to note that "if a person decides to use the FDR method for one investment, then they must use this method for all their FIF investments that year unless the legislation prevents them from doing so."

One of the aspects of the FDR FIF calculation method is the 'Quick Sale Adjustment', which "is an extra amount calculated when a person buys and sells an attributing interest in the same FIF in the same income year and makes a gain."

The FDR method does not take into account sales and purchases unless the shares in that attributed interest have the sales and purchase within the same year. If this occurs the quick sale adjustment calculation is required to be made to adjust for the sales within the period. The quick sale method is the addition of any additional income to the already calculated opening market value * 5%. The FIF calculator below calculates this for you.

In an example of how the foreign investment fund calculator works below, we can use a standard example across the five methods to see how the return differs. 

Person A has $100,000 as the 'Opening Market Value ($)' which is the total of the market values of the share of the foreign investment funds at the beginning of the tax year. The 'Opening Number of Shares' (number) that they held was 10,000 at the start of the year, however, during the year this fluctuated upwards to 15,000 shares which was their 'Largest Shareholding During The Tax Year' (number), but ended up at 13,000 shares which was their 'Closing Number of Shares' (number). The total 'Number of shares acquired during the tax year' was said to be 7,000 shares. We have established the start of year market value, and we have the share counts across the start, peak and close of the financial year.

We also need the 'Value of shares acquired during the year' which in our example is $154,000. For the sales of shares, or the 'Number of shares disposed of following acquisitions' the count was 4,000. The 'Value of shares disposed of following acquisitions' was $100,000.

Looking at the example above the 'Difference between opening and peak'was 5,000 shares (15,000 peak - 10,000 opening count), the 'Difference between closing and peak' was 2,000 shares (15,000 peak - 13,000 closing count) and the 'smallest difference' between those two was 2,000 which was the difference between closing and peak.

In terms of the 'Average value of shares acquired' that worked out to be the $154,000 spent on the 'Value of shares acquired during the year' divided by the 7,000 'Number of shares acquired during the tax year'. This equates to and average value of $22.00 per share.

In our example, as we now know the average value of shares acquired in the period, which was $22.00, we can multiply that by the smallest difference of 2,000 to get $44,000. Taking 5% of this end up with a 'Peak holding adjustment' of $2,200 (A).

The 'actual gain' is calculated as the ['Value of shares disposed of following acquisitions'], which was $100,000 minus the ['Number of shares disposed of following acquisitions' (4,000) multiplied by the 'Average value of shares acquired' ($22.00)] which equals $100,000 - (4,000*$22.000), or $100,000 - $88,000 which is $12.000 (B). The quick sale adjustment is the smaller of the two values of (A) $2,200, and (B) $12,000 above.

The end calculation for the FIF income is the opening value of $100,000 multiplied by the 5% rate which equates to $5,000, plus the quick adjustment value from (A) above which was $2,200 resulting in an income of $7,200 for the period. With a user specific tax rate of 33%, this generates a FIF income via the FDR method of $2,376.

NOTE: This calculation will need to be undertaken for each of the attributing interests that you hold shares in, it cannot be completed at an aggregate level.

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