The $50,000 tax trap that could quietly cost Kiwi investors thousands

Tuesday, 24 March 2026

Research found that advice from friends and colleagues is cited as an important source of information for 85% of investors under the age of 35, and 61% of these investors also said they were using social media as a source for investment information.

We tend to focus on the things we can see most easily when it comes to investing.

Management fees, returns and fund performance are all integral in choosing the right providers or investments, but there’s another invisible leak that can quietly drain vast sums out of our wealth if we get it wrong.

The tax settings wrapped into our investments have the potential to eat into our gains – and the full impact can be difficult to identify if you don’t know where to look.

Dean Anderson, the founder of Kernel Wealth, has become something of a self-proclaimed nerd when it comes to looking at how taxes can impact your investments over time.

“Tax is another cost of investing, exactly like fees,” he tells me, noting that those who don’t look at their tax structure could be leaving money on the table.

For the vast majority of Kiwi investors, the two tax structures we’re most likely to encounter are those applicable to foreign investment funds (FIF) and portfolio investment entities (PIE).

Anderson explains that when we buy directly into an international share or exchange-traded fund, those are treated as foreign investments, which means the FIF rules apply.

Under FIF rules, both the dividend that you earn and any income you make from selling your shares may be taxed according to your tax bracket:

$0 – $15,600 (10.5%)
$15,601 – $53,500 (17.5%)
$53,501 – $78,100 (30.0%)

Kernel founder Dean Anderson thinks Kiwi investors need to think carefully about their tax obligations.

$78,101 – $180,000 (33.0%)
$180,001 and over (39.0%)

For high-income earners, Anderson explains, this could result in a tax rate of 33% or 39%.

He contrasts this with PIE funds, which have a total tax rate capped at 28% – regardless of your income earned through your employer.

That could be as much as an 11% difference in the taxes you pay. And those numbers add up quickly.

Comparing two $100,000 investments, each earning 5% per year, but one structured as a PIE fund and the other just a direct investment in international shares or assets, it quickly becomes clear how expensive the wrong setup can be when taxed according to their income rather than the capped 28% rate.

At the 30% bracket: You pay $100 more per year.
At the 33% bracket: You pay $250 more per year.
At the 39% bracket: You pay $500 more per year.

Anderson says this, combined with other international taxes you could be liable for, could shave around 1.3% to 2.9% annually from the gains you might make on your international equity investments.

Just think for a moment how bad it would feel if you were to see a 2.9 percentage point bump on your mortgage rate to understand how damaging a few percentage points might be.

Beware the $50,000 minefield

While PIE funds can give you exposure to international equities through managed funds and dedicated platforms (including Kernel and Sharesies), many investors still prefer to invest directly in the stocks they like.

However, Sam Mathews, a tax partner at Deloitte, warns direct investors often drift into a 'tax minefield' without realising it.

The danger zone begins when your investments in foreign shares pass the $50,000 cost milestone (note: this is determined by the cost paid, not the market value).

Deloitte partner Sam Mathews warns investors to keep track of how much they've invested.

As you cross that figure, you move away from just being taxed on dividends and realised gains (from selling your shares) to the world of deemed returns.

Once this happens, explains Mathews, the base case is that your taxable income is 5% of the opening market value at the beginning of your tax year (1 April). For individuals and most trusts, the rules do provide the ability to pay a lower amount where your listed portfolio returns less than the deemed 5% in a year.*

“But over time, it can give you a tax liability regardless of whether you realise any money from that investment or not,” he says.

Even if your shares didn’t pay a cent in dividends, or if the market stayed flat, you could still have a tax liability.

Mathews notes that this can be a giant benefit if the market is doing well (as it has in recent years, rising by more than 5%), but it can similarly feel quite frustrating when the market dips.

His recommendation is to keep track of your portfolio value to ensure you understand your tax obligations at the beginning of every year.

If you would prefer not to pay tax on a deemed 5% return, then you could maintain your direct foreign holdings under $50,000.

Mathews does, however, note that this rule has become quite antiquated, given the way New Zealanders invest has changed rapidly.

'That $50,000 threshold has not moved in around 25 years,' he says.

“Meanwhile, the investment space and the ability to access share markets for the average investor are quite different from what they were 25 years ago.'

The Government has already announced some shifts in these rules to ensure migrants and returning Kiwis aren’t penalised unfairly for holding international investments.

Mathews says he’ll be watching this space closely to see if there are other changes on the horizon.

Whether the rules change down the line, the onus remains on individual investors to ensure their tax settings align with their goals.

Inadvertently making the wrong move can prove costly – particularly when that mistake is compounded over time.

*Update: This section was updated after publication to include the nuance in the rules when a portfolio returns less than 5% in a financial year.

So what are your thoughts on this? Should the $50,000 threshold be lifted? Or what do you think would be the fairest approach? Let us know in the comments section below.