FDR vs CV: which method is better?
If FIF applies to you, you have a choice between two methods for calculating your taxable income. The good news: you get to pick whichever one gives you the lower result. The catch: you must use the same method for all your FIF holdings within a tax year.
The Fair Dividend Rate (FDR) method
FDR is the simpler method. You take the total market value of all your foreign investments at the start of the tax year (1 April) and multiply by 5%. That's your FIF income, regardless of how the portfolio actually performed.
When FDR wins: In years when your portfolio grew by more than 5%, FDR gives you a lower taxable income than CV. It is also simpler since you only need to know your opening balance.
When FDR loses: If your portfolio barely moved, fell in value, or you received large dividends, CV might give you a lower or even zero result.
The Comparative Value (CV) method
CV calculates your income based on what actually happened to your portfolio: the change in value plus any dividends received.
Minimum: $0. CV can never go below zero
When CV wins: In a flat or down year, CV income is lower, possibly zero. If your portfolio fell in value, the negative change partially or fully offsets any dividends you received.
When CV loses: In a strong year (portfolio up more than 5%), CV income will be higher than FDR. CV also requires more record-keeping. You need the closing value and total dividends received.
A quick comparison
| FDR | CV | |
|---|---|---|
| Formula | Opening × 5% | (Closing − Opening) + Dividends |
| Data needed | Opening value only | Opening, closing, dividends |
| Good years (portfolio up >5%) | ✓ Usually lower | ✗ Usually higher |
| Bad years (portfolio flat/down) | ✗ Can be higher | ✓ Can be lower or zero |
| Can result be zero? | No (always 5% of opening) | Yes (floored at $0) |
| Complexity | Simple | Slightly more record-keeping |
Can I switch methods each year?
Yes, you can choose a different method each tax year. You're not locked in. However, within any given year, you must use the same method for all FIF holdings.
In practice, most investors calculate both and pick the lower one each year. Our calculator does this for you. Just enter your figures and it highlights the winner.
What about the quick sale adjustment?
If you bought shares in a company and then sold them again within the same tax year (a “quick sale”), an additional adjustment is added to your FDR income. This prevents people from gaming the system by buying shares just after 1 April and selling just before 31 March. Our calculator includes a simplified version of this adjustment.
FIF Sorted is an estimation and education tool only. It does not constitute tax advice and should not be relied upon as a substitute for professional advice tailored to your situation. Tax rules can change, so always verify with Inland Revenue (IRD) or a qualified tax professional before filing.