How ETFs Are Taxed in NZ
17 Aug, 2025
Welcome to a blog about how Exchange Traded Funds (ETFs) are taxed in New Zealand. Exciting stuff. Creating this blog post gave my brain quite the workout, I can assure you! I’ve written specifically about tax a few times over the years, but rules change, companies come and go, and the tax questions keep arriving in my inbox.
This post was inspired by questions from Susan, which I have edited for clarity. She wanted to ask about:
Tax on overseas investments, such as a Total World ETF/ Index fund.
How is the tax worked out?
Do I still have to pay taxes even if I make a loss?
Does the FIF (Foreign Investment Fund) tax make it a relatively high-fee investment?
How does the FIF tax work?
What are the two ways that FIF taxes are calculated?
In the interest of simplicity, and to stay in line with the financial independence suggestions of Rebel Finance School, JL Collins, Mr. Money Mustache, etc, to simply “buy the whole sharemarket”, I’m going to focus on a Total World Fund and two providers that offer it: Smart and InvestNow.
Another provider worth mentioning is Kernel Wealth, but they don’t offer a pure Total World Fund, and they also handle tax differently, requiring you to manage your FIF taxes. As part of your research and understanding of your tax obligations, they are worth looking into.
Tax is complicated, which is why I keep my investing simple. I want you to read what I’ve written and then research, discover and learn for yourself. If you keep your investing (and your finances) simple, you should not need an accountant or tax professional.
I provide the most use to people when I talk about my investment situation, which is very, very simple: KiwiSaver + ETF. We now have $600,000+ invested across these two investments.
When the topic of taxes comes up, I’ve often noticed that people can get themselves quite worked up. But for me, someone who has invested for many years, paying tax on investments has always been relatively straightforward.
So, here goes.
There are four acronyms to keep in mind when considering tax on your investments:
RWT - Resident Withholding Tax
PIR - Prescribed Investor Rate
PIE - Portfolio Investment Entity
FIF - Foreign Investment Fund
You can’t avoid paying tax on your investment income, so don’t enter into investing with that as your focus. Honestly, it is harder to be dishonest than honest. Keep your investing simple, and taxes are not difficult to manage. Most providers even work it out and pay it for you.
Also, don’t get so hung up on tax that you lose sight of the bigger picture. For instance, if you stick only to New Zealand shares just to avoid the tax on international ETFs, you could be missing out on the bigger gains that come from investing globally.
Like most things in life, it’s about balance: pay what’s due, but pick investments that suit you best. If you keep it simple, you probably won’t need an accountant. If you get complicated with stock picking and constant trading, you probably will.
Disclaimer: I’m no tax professional. I have zero financial qualifications. I’m just sharing what I’ve learned along the way. Your situation will have its own quirks, so do your homework. The IRD, MoneyHub, and this older article by MoneyKingNZ are good places to start.
What do you have to pay tax on in Aotearoa?
Everyone in New Zealand needs to pay tax on any income that they earn. This includes paying tax on income earned from savings and investments.
For example:
Our $10,000 emergency fund sits in a savings account with the bank. Last month, it earned $16.53 in interest, and $2.89 in RWT (resident withholding tax) was instantly deducted.
In June, I received a $1,700 dividend from my ETF investment. I paid taxes on this dividend income.
Generally, if you invest in line with the F.I. movement (buy a simple low-cost global ETF), investments pay out minimal dividends (income), which lessens the tax I pay. And in most instances, share investors do not pay capital gains taxes in New Zealand, so there is no tax to pay on the growth of my investment. For example, in the last 12 months, our investments have grown by about $80,000, but we do not pay a capital gains tax on that growth.
The amount of tax we pay depends on what we earn.
| For each dollar of income: | The Resident Withholding Tax (RWT) rate is: | |
|---|---|---|
| 0 - $15,600 | 10.5% | |
| $15,601 - $53,500 | 17.5% | |
| $53,501 - $78,100 | 30% | |
| $78,101 - $180,000 | 33% | |
| $180,001 and over | 39% |
Go here to work out your tax code: IRD: What tax code should I use?
Your tax rate is progressive and increases as your income increases across all sources. The amount of tax you pay depends on the tax code you supply to that provider when you sign up, and your total income for that tax year. It is important to, as best you can, use the correct tax code because at the end of the tax year, the Inland Revenue Department (IRD) will do the math on whether you supplied the correct rate or not. You may get a refund or a tax bill, depending on the information you provided. You can update your correct RWT rate throughout the year. You might even get a prompt from the IRD encouraging you to do so if they have noticed that your income has changed.
When you set up an investment, you will provide your RWT rate, meaning that this information is shared with the IRD, which is very useful.
Personally, I have multiple income sources:
Pay as you earn (PAYE) from occasional part-time work
Self-employed income
Investment income in the form of dividends/distributions
My income is variable; no two months are ever the same. To the best of my ability, I’ve guessed how much I think I will earn in the coming year, and I provide the correct tax rates to all sources of income. I keep thorough records using PocketSmith, which makes it easier for me to estimate future income.
For running my business, The Happy Saver, I use accountants Hnry, which has been a huge help because they calculate and pay my taxes as I earn, meaning no need to save up to pay a tax bill at the end of the year.
However, even with these two powerful tools at my disposal, both of which have taken a lot of the guesswork out of managing money, it is only at the end of the financial year that I truly learn my complete income picture and whether I’ve paid the correct tax.
As with anything in life, you have to remain flexible.
My ETF (or Index Fund) investments are PIE funds.
A Portfolio Investment Entity, or PIE fund, is a way that providers give their customers a slight tax advantage. A PIE has a top tax rate of 28%. So, if you typically fall into the 30%+ tax brackets mentioned above, it is advantageous to invest using a PIE fund.
When you sign up for a PIE investment, you give them your Prescribed Investor Rate (PIR), which is typically 10.5%, 17.5%, or 28%. If you don’t provide them with anything, they will assume it’s 28%.
Use this IRD link to determine your Prescribed Investor Rate.
A ‘Multi-rate’ PIE is, according to the IRD website, the most common type of PIE. Their income (i.e. dividends/distributions) is taxed at the investor's Prescribed Investor Rate (PIR), but capped at 28% tax.
The InvestNow Foundation Series Total World fund is a multi-rate PIE fund. If my PIR is 10.5%, I would be taxed at that rate.
In contrast, a ‘Listed PIE’ is taxed at 28%.
Smart is a listed PIE, so that even if my PIR is 10.5%, each ETF will pay tax on taxable income at the rate of 28%.
Because of my variable income, my PIR has been lower than 28% one year, and higher in another, meaning that by investing using Smart, in some years I had overpaid taxes slightly.
Some people get pretty worked up about the thought of overpaying taxes.
It is helpful to put this into perspective with some math:
If a $100,000 investment into a Smart Total World Fund (TWF) paid a 1.15% dividend, that would be income of $1,150. Because it is a listed PIE, the tax rate applied to that income is 28%:
$1,150 taxed at 28% is $322
$1,150 taxed at 17.5% is $201
Difference = $121
Had this been my situation, at the end of the financial year, the IRD would have offset the $121 tax I had overpaid with tax I needed to pay. Or, they would just provide a refund.
When you invest this way, your dividends/distributions/income are shared with the IRD, making managing tax relatively straightforward. Plus, you can see that income earned from dividends is very low, meaning that we pay tax on quite a small amount of income. In the grand scheme of things, a short-term overpayment of $121 probably won’t change your life.
How do you pay tax on an international ETF?
I’ve talked above about how I pay tax on my income. Now I want to talk about how the fund I use pays an additional international tax on my behalf.
I’m going to talk about how I pay tax on my international ETF investment with Smart, because it's the provider I use and know best. Feel free to comment below about your situation and provider if you think it will be helpful to others.
The Smart Total World ETF (ticker code TWF) is a New Zealand-domiciled fund that tracks the FTSE Global All Cap Index and invests in the Vanguard Total World Stock ETF (ticker code VT), which is a US-listed fund. Because TWF invests indirectly in overseas shares via this US ETF, it falls under New Zealand’s Foreign Investment Fund (FIF) tax regime.
FIF tax is in addition to the regular income tax we pay (those mentioned above).
Here is how FIF Tax Works for Total World Fund Investors
Smart handles FIF tax for you (as the investor).
This means that Smart calculates and pays the FIF tax on your behalf. You don’t need to do any FIF calculations yourself or declare this income on your tax return (as long as you're an individual investor and not a company/trust).
I had purposefully chosen a fund manager that calculates and pays my FIF taxes. I do not want the added work of doing it myself. I’ve tried and found it complicated.
In addition to investing with Smart, many years ago, I was using another provider (Hatch), which left me to self-manage FIF tax. My experience and conversations with a dozen others who had done the same led me to conclude that although calculating your own FIF tax is touted as ‘simple and easy’ by the provider, in my experience, and for most people, it simply is not. Therefore, I was pleased to settle on using one provider that managed my FIF tax for me.
The IRD has extensive information on Foreign Investment Funds (FIF) to help you better understand.
There are a few different ways that a provider calculates tax. And, they aim to use the method that is most financially beneficial to you. All of this goes on in the background, and if not for writing about it, I never engage with these calculations.
The Tax Calculation Method Used for Calculating FIF Tax
The fund uses the FDR (Fair Dividend Rate) method
Smart applies the FDR method for calculating taxable income on the foreign shares held via VT.
FDR = 5% of the market value of the offshore investment at the start of the tax year (1 April).
This 5% is taxed at your PIE tax rate (usually 10.5%, 17.5%, or 28%).
Even if the underlying investment (VT) loses value, you'll still be taxed as if it grew 5%. On the flip side, if it grows by more than 5%, you’re still only taxed on 5%, which can be beneficial during strong market years.
Do You Receive Dividends?
Yes, you may receive distributions (dividends) from TWF, and they are generally treated as excluded income for tax purposes because the tax is already handled within the PIE structure via FIF. Again, no calculations are required by me; the fund provider does this.
What About Withholding Tax?
US withholding tax is deducted at source.
Because TWF invests in a US ETF (VT), the US charges withholding tax on dividends at a 15% rate (under the NZ–US tax treaty). This tax is not refundable to you, but it's accounted for in the fund’s after-tax returns.
If you're holding a Smart TWF inside a Sharesies, InvestNow, or another platform, the same rules apply—Smart handles the tax, and you simply get taxed at your PIR. You’ll see this reflected in your year-end tax summary, not your personal IR3 return (unless you have special circumstances).
Here's an example showing how the FIF tax via the FDR method works on a $10,000 investment in the Smart Total World ETF (TWF).
Let’s assume:
You hold the TWF fund all year.
The Prescribed Investor Rate (PIR) is 28%.
TWF uses the FDR method to calculate taxable income.
The value of your investment on 1 April is $10,000.
Step 1: Calculate FIF Income
FDR assumes 5% taxable income, regardless of actual return.
$10,000 × 5% = $500 (taxable income)
Step 2: Apply Your PIR
$500 × 28% = $140 (tax payable)
So, you’ll owe $140 in tax on that $10,000 investment for the year.
This tax is automatically calculated and paid by Smart, and it will either:
Reduce your final distribution slightly, or
Be withheld from fund income throughout the year.
What If Your Investment Grows More or Less?
| Scenario | Fund Value Change | You Pay Tax On | Tax Amount (PIR 28%) | |||
|---|---|---|---|---|---|---|
| Fund drops to $9,000 | -10% loss | $500 | $140 | |||
| Fund stays at $10,000 | 0% return | $500 | $140 | |||
| Fund grows to $11,000 | +10% return | $500 | $140 | |||
| Fund grows to $12,000 | +20% return | $500 | $140 |
So, do you get taxed, even if you make a loss, Susan? Yes. With the FDR method, you always pay 5% tax, regardless of how the fund actually performs.
What You Need to Do: Nothing!
Since TWF is also a PIE, this tax is all handled for you. At the end of the tax year, you’ll see the tax in your platform’s summary (e.g. Sharesies, InvestNow, Smart), but it won’t need to go on your tax return (unless your PIR was wrong or you’re filing for another reason).
FIF kicks in after $50,000.
A point worth noting on FIF is that if the total cost of ALL of your overseas shares (across multiple providers if you have them) remains under NZD 50,000 during the tax year (1 April to 31 March), your provider will not need to calculate and declare FIF income. If the share market goes up and the value rises above $50,000, I still don’t pay - it’s about the amount I put in, not the returns.
I’ve heard mention of capping your contributions so you don’t tip over the magical $50,000, but in my mind, this is short-term thinking. $50,000 invested is not enough to retire on, and I want to see people strive to have many multiples of that. So, ‘stopping investing’ to save on taxes makes zero sense to me.
Paying FIF tax is just part of having access to these global funds, I’m afraid.
Additional Questions asked by Susan:
She asked about the TWO ways that the FIF tax is calculated. Actually, there are three:
De minimis exemption - Taxes you on dividends earned. Used for investments under $50,000
Fair Dividend Rate (FDR) - explained above
Comparative Value (CV)
The CV method taxes you on the actual increase in the value of your investments. You compare the opening value on 1 April with the closing value on March 31st of the following year to determine your taxable income. If you make a loss, your FIF income is $0.
Sounds straightforward? It’s not. MoneyKingNZ created a blog post back in 2022 that provides more details about the three options. I’ve met many people who love nothing better than to dig into each of these methods and invest accordingly. They relish the nitty-gritty of working it all out. But these people are the minority, and I want readers to know that you don’t have to get deep into the weeds of taxation if you don’t want to. I know for a fact that I don’t want to, so I’ve chosen a provider who does it for me. I still invest monthly, and still grow our wealth over time, all without stressing about taxes.
Does the FIF tax make it a high-fee investment?
While it does add cost, you can think of it as the price of admission. We generally invest in a fund of this type due to the higher returns we believe they will earn over time, and the expectation that this cost of entry will be made up for in higher returns. If you want to invest in a fund of this type, then you have to respect the different tax systems of other countries.
What about ‘tax leakage’?
I’m not going to go into detail here, but I know that I will likely get emailed about it. In a New Zealand investing context, tax leakage generally refers to situations where your investment income is taxed in a way that results in you paying more tax than is strictly necessary under New Zealand’s tax rules. It’s often because of how overseas investments or fund structures handle tax.
For example, if a US company pays a NZ investor a dividend, the US might take 15% withholding tax. NZ will then tax the gross dividend at your rate, but only allow a credit up to the 15% - so if the overseas tax was higher, or if it was deducted before it reached your fund and you can’t claim the credit personally, that extra is tax leakage.
As an investor in one Total World ETF, the provider is doing everything it can, using the experts it employs, to reduce any tax leakage. Each provider is aware of this issue and has their processes to limit it on their investors' behalf. To head out on my own, to do any better would be a fool's errand, and in the interests of keeping my investing simple, I personally don't dwell on tax leakage.
Imputation Credits
Imputation Credits are one of the ways your provider recovers some overpaid taxes for you. Whenever I receive my bi-annual distribution from Smart, they detail a tax credit, called an Imputation Credit. The imputation system was introduced to make sure that, as far as possible, company profits are taxed only once. Before this, a company paid income tax on its profits, and then the shareholders (you and I) paid tax again when the company's profits were distributed to us as dividends.
This system is designed to avoid double taxation of company profits, and a company will attach an imputation credit to your dividend payment to enable you to reduce the overall income tax you need to pay personally.
I wrote this blog post, Imputation Credits = Tax Savings, to explain how I make sure I receive these credits.
Perhaps using New Zealand or Australian ETFs is a better option?
If we avoid investing internationally, can we make our lives easier? Not necessarily. You may avoid paying FIF taxes, but you may not get the returns you are seeking. The reason I invest in a Total World Fund is that I’m not a single-stock or single-country picker. I’d rather buy the best global companies in one fund, in line with the advice from JL Collins, Mr. Money Mustache, ChooseFI, and Rebel Finance, than risk it by buying just one country. What I might save in tax, I may well give up in performance.
Investment providers to research in New Zealand are:
Here in New Zealand, we have a plethora of options when it comes to investment providers and the thousands of different funds and shares they offer. Too many. Too confusing. It was with great relief that all those years ago, I read The Simple Path to Wealth, which led me to all sorts of other great personal finance content and again and again, they advocated for just buying a large ETF (or index fund) and getting on with my day.
Providers like Smart and InvestNow (Foundation Series) knew that Kiwis wanted to buy this type of investment, and they made it their job to create a product that would give regular people like me access to it cheaply. They knew that the FIF tax could be a problem, so they made it their problem to solve, not mine. I invest in NZD and leave them to sort out the rest for me (including foreign exchange rates).
When you are looking for a provider, work out if they are a multi-rate or listed PIE, and whether they calculate and pay FIF tax, or if you have to.
Some investors find FIF taxes easy to manage and pay, which means other providers (such as Kernel) might work well for them. But on the other hand, I have met plenty of people who just don’t want to have to manage that aspect. You have a choice, meaning you get to decide.
In summary
Understanding how overseas investments are taxed in New Zealand can quickly become overwhelming, but it doesn’t have to be. Hopefully, I’ve managed to explain the key tax implications of investing in Smart Total World ETF (TWF), a New Zealand-domiciled listed PIE fund that invests in a US ETF. Because of its international exposure, it falls under the Foreign Investment Fund (FIF) tax regime, which uses the Fair Dividend Rate (FDR) method to assume a 5% return - taxed at your PIR - regardless of actual performance. The good news? You don’t need to lift a finger. The providers I mentioned handle the tax for you, which is such a relief. While this tax does add a layer of cost, it’s outweighed by the potential for strong long-term returns. For investors seeking simplicity and global diversification without managing complex tax calculations, funds like TWF offer a set-and-forget solution, just as long as you understand the price of admission.
Again, I advocate for simplicity when managing your money. This means you can manage your own money, not have to hand it off to a financial advisor, accountant or tax professional. Apart from using Hnry to manage my business accounting, I manage our personal investment portfolio ourselves.
I don’t like financial problems, particularly ones that might upset the IRD. When it comes to tax in particular, I knew I had to keep our investing simple. If I am confused, I ask either my provider or the IRD for clarification. Too many people bamboozle themselves with setting up complex investments, only to confuse themselves, and then think they need professional help to manage them. It is common to open up several investments with several providers, over several years and struggle to manage them all. Much like you would consolidate your debts, I advocate consolidating your investments down to one or two providers, with just one or two funds. Keep it simple because it's simpler and easier to manage yourself.
This blog post is not exhaustive. I’ve written about my experience, and I will have missed bits that apply to yours. So, in the comments below, you are welcome to add your constructive, kind and helpful feedback to help others.
