For Kernel’s global and specialty index funds, your tax is calculated on your average investment balance across the year. Our NZ funds are taxed differently. Learn how NZ fund tax works here.
Since 2007, international investments by New Zealanders have been taxed under the Foreign Investment Fund (FIF) rules. For full details, see the IRD’s guide or read our blog for a plain‑English overview.
In short, when you invest overseas through a New Zealand fund manager like Kernel, your tax is calculated each April on your average balance over the previous 12 months. If you started investing partway through the year, it’s prorated for the period you were invested.
If you sell any fund holdings during the year, you will pay the tax earlier. Known as the Fair Dividend Rate (FDR), your PIR (prescribed investor rate) is multiplied by 5% of the average balance, to calculate the tax. Any Foreign Tax Credits we have collected from withholding tax already paid overseas are then allocated to you to reduce what you owe.
This tax is calculated independently of the fund’s distributions and underlying dividends/income (which is different from most NZ investments). As a result, you may owe tax even in a year when the fund declines in value.
An example for global investments:
| Average balance | Deemed 5% Dividend | Total Tax | Foreign tax credits applied | April Tax |
International Fund A | $10,000 | $500 | $140 | $100 | $40 |
International Fund B | $5,000 | $250 | $70 | $20 | $50 |
International Fund C | $5,000 | $250 | $70 | $0 | $70 |
Totals | $20,000 | $1,000 | $280 | $120 | $160 |
In this example, the total tax for the year is $280. Because $120 has already been paid to foreign governments, double tax treaty rules mean only $160 is owed to Inland Revenue. This is combined with any tax or refund from your NZ investments.
We take care of the calculations, reporting, and payment for you. We consolidate tax across your Kernel funds and either pay Inland Revenue or secure your refund on your behalf.
Your annual tax statement will be available in the Kernel platform by the end of April. It shows a detailed breakdown of your tax and any credits applied, which you can use for a tax return if needed. Provided your PIR is correct, the correct amount of tax will have been paid.
Please note: Holding overseas shares directly (up to $50,000 invested) can sometimes be more tax-efficient on its own. However, the transaction costs and effort of managing and claiming tax credits can often outweigh the benefit.
When you have more than $50,000 invested overseas, a New Zealand-based fund has paid less tax in over 70% of past years. For details, see the IRD’s guide to Foreign Investment Funds here.