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FIF Cost Method Guide

Step 9 of 14 in the pathway Investing beyond KiwiSaver
Previous: The comparative value method · Next: The deemed rate of return method

🌏 FIF Cost Method (CM)

The Cost Method is a variation of the Comparative Value (CV) Method used specifically for the first year you hold a foreign investment. Instead of using opening market value (which doesn't exist), you use the cost of acquisition.

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Key Point: Cost Method = (Closing Market Value - Cost) + Distributions. Used only when you acquire a FIF during the tax year and have no opening market value. From the second year onward, switch to regular CV or FDR methods.

Cost Method Formula

FIF Income = (Closing Value - Cost of Acquisition) + Distributions
Where:
Closing Value = Market value at 31 March (year end)
Cost = Purchase price + transaction costs in NZD
Distributions = Dividends received after purchase

When to Use Cost Method

  • First year only: When you purchase FIF during tax year
  • No opening value: Investment didn't exist at 1 April
  • Mid-year acquisition: Bought anytime between 1 April and 31 March

Simple Example

Purchased US ETF in October:

Purchase date: 15 October 2024
Cost: USD $50,000
Exchange rate: 0.62 NZD/USD
Cost NZD: $50,000 ÷ 0.62 = $80,645
31 March 2025 value: USD $54,500
Exchange rate: 0.58
Closing NZD: $54,500 ÷ 0.58 = $93,966
Dividends NZD: $850
FIF income = ($93,966 - $80,645) + $850
= $14,171

Next Year: Switch to CV or FDR

From 1 April 2025 onward, opening value = $93,966. Use either:

  • CV Method: Track value changes from $93,966 opening
  • FDR Method: Calculate 5% × $93,966 = $4,698

🔢 Cost Method Calculations

Example 1: Purchase Early in Year

Purchased: 10 April 2024 (day after year start)
Cost: $75,000 NZD
31 March 2025: $82,000 NZD
Dividends: $1,200
FIF income = ($82,000 - $75,000) + $1,200 = $8,200

Example 2: Purchase Late in Year

Purchased: 28 February 2025 (1 month before year end)
Cost: $100,000 NZD
31 March 2025: $101,500 NZD
Dividends: $0 (too soon)
FIF income = $101,500 - $100,000 = $1,500

Example 3: Multiple Purchases Same Year

Purchase Date Cost NZD
May 2024 $30,000
August 2024 $25,000
December 2024 $20,000
Total Cost $75,000
31 March 2025 value: $85,000
Dividends: $2,100
FIF income = ($85,000 - $75,000) + $2,100 = $12,100

🌍 Real-World Examples

1
New Investor First FIF

First-time overseas investment:

Purchased Vanguard ETF: September 2024
Cost USD $80,000 = NZD $128,000
31 March value: USD $86,000 = NZD $145,000
Dividends: NZD $2,800
FIF income = ($145,000 - $128,000) + $2,800 = $19,800
Tax at 33%: $6,534
2
Loss in First Year
Purchased: November 2024, Cost $90,000
Market crash by 31 March: $78,000
Dividends: $1,500
FIF income = ($78,000 - $90,000) + $1,500 = -$10,500
Loss reduces other taxable income by $10,500

🎯 Test Your Knowledge

Quiz on FIF Cost Method

1. When is the Cost Method used to calculate FIF income?
Every year
Never
First year only when acquiring FIF mid-year
Only for losses
2. Cost $60K, Closing $68K, Dividends $1.5K. What is the FIF income?
$9,500
$8,000
$68,000
$1,500
3. After the first year of using Cost Method, you should:
Continue using Cost Method
Switch to CV or FDR method
Stop calculating FIF
Use DRR method
4. Under the Cost Method, what does cost include?
Just purchase price
Market value
Only foreign currency amount
Purchase price plus transaction costs in NZD
5. Purchase in February, value falls by March. What is the FIF income?
Negative (loss)
Zero
Still positive 5%
Cannot calculate
6. Purchased 3 times in one year. Cost basis is:
First purchase only
Last purchase only
Total of all purchases
Average purchase price
7. Cost Method differs from CV Method because:
It uses 5% rate
Excludes dividends
No difference
Uses cost instead of opening market value
8. If you buy on 1 April (year start):
Cannot use Cost Method
Must use FDR
Exempt from FIF first year
Use Cost Method (no opening value exists)
9. What does the Cost Method formula include?
Closing value, cost, and distributions
Only closing value
Only cost
Opening value × 5%
10. From year 2, opening value becomes:
Original cost
Previous year's closing value
Zero
Average of cost and closing

🧮 Try Cost Calculator
Data sources: the rates and thresholds on this page are maintained against Inland Revenue. Figures are checked twice monthly.

Related guides

Situations like yours. The 2 situations worked through above sit alongside 11 more about owning overseas shares and FIF tax, each with the sums shown.