Removal of the grey list exemption
One of the major changes introduced as part of new FIF rules is the removal of the grey list exemption for investments of less than 10% interest in companies resident in grey list countries.
What is the grey list?
Previously, investments in eight countries (Australia, Canada, Germany, Japan, Norway, Spain, the United Kingdom and the United States) were treated the same as a New Zealand-based investment for tax purposes because these countries encouraged the payment of company profits by way of dividends (similar to New Zealand), rather than putting the profits back into the company, and increasing the capital value of the shares.
Because most investors were treated as holding their investments on capital account, they only returned tax on the actual dividends that they received.
Reason for change
Changes in the world investment, eg, the introduction of zeros* meant that the exemption was no longer relevant and therefore has been removed. Subject to some new exemptions the removal of the grey list exemption means that these investments may now be included as attributing interests and come within the FIF rules.
Note
The majority of offshore investments are in Australia and may qualify for a different exemption and continue to be taxed on dividends received.
*A zero is a company that generally has a fixed life of, say five years, at the end of which it guarantees to provide a minimum capital growth return on your investment. For example, purchase share price of $1 has a guaranteed buyback of $1.35 after five years. It does not pay dividends (hence the name "zero" for "zero dividend"). Instead it uses any profits to increase the capital value of the company.
Find out more
Date published: 30 Nov 2007
Back to top
