The Australian share exemption

One of the most useful FIF exemptions for NZ investors is the Australian share exemption. If you only invest in Australian shares that qualify, you might not need to worry about FIF at all, even if your portfolio is well over $50,000.

What qualifies for the exemption?

To be exempt from FIF under this rule, the shares must be in a company that:

1. Is an Australian company (incorporated in Australia)
2. Is listed on the ASX (Australian Securities Exchange)
3. Maintains a franking account (the mechanism used to avoid double-taxation of Australian company profits)

The franking account requirement is the key one. Most ordinary Australian companies (BHP, CBA, Wesfarmers, etc.) maintain franking accounts, so they qualify. But some do not, particularly foreign-incorporated companies that just happen to be listed on the ASX.

What doesn't qualify?

Watch out for these common traps:

• Australian ETFs: an Australian ETF (like one from Vanguard Australia or iShares Australia) is a trust, not a company with a franking account. These generally don't qualify for the exemption.
• Companies incorporated overseas but listed on ASX: if a company is based in the UK or Singapore but listed on the ASX, it's not an Australian company and doesn't qualify.
• LICs and LITs: Listed Investment Companies often qualify (they're Australian companies), but Listed Investment Trusts don't (they're trusts, not companies).

If your investments qualify: what do you do instead?

If all your overseas investments are in exempt Australian shares, you don't apply FIF rules at all. Instead, you just:

• Declare any dividends you receive as normal income
• Report any capital gains if you're classed as a trader (most long-term investors aren't)
• Potentially claim a foreign tax credit for any Australian withholding tax already paid on those dividends

Mixed portfolios

If you hold some exempt Australian shares and some other overseas investments (like US shares), the exemption applies to the Australian holdings only. Your non-Australian holdings would be assessed separately for FIF, using the $50,000 threshold based on their cost.

It's “likely exempt” vs “definitely exempt”

This is why our checker says “likely exempt” rather than “definitely exempt.” Determining whether a specific company maintains a franking account requires checking the company's details, and it is not always obvious.

If you're unsure whether your specific Australian holdings qualify, the safest step is to verify with IRD or a tax adviser.