Offshore taxation for New Zealand residents

I am asked a number of times about taxation of offshore investments when you go back to New Zealand and become a tax resident. There are many conditions about what constitutes a tax resident or a non-tax resident. This is out of the sphere of this article but lets just say for argument sake you return to New Zealand and become a tax resident and for argument sake you have a large proportion of your portfolio in offshore investments which you have acquired during your time overseas.

So how is this portfolio taxed? I called the  IRD and asked and this is what they said:
Well, first of all New Zealand residents are taxed on their worldwide income so don't think that you can hide it away. They'll find it. You are liable to pay tax on your offshore portfolio if it is over $50000. There are exceptions to this with the major one being if the investments are Australian based.

Secondly, the IRD use a system called the Fair Dividend Rate. It assumes that you have received 5% interest on your investments. For example,  if your portfolio is worth $100,000 they the IRD will assume that you have received $5000 and then you are taxed accordingly. If your offshore investments gains more than 5% for example 10%, then you are only taxed on 5%. If it is less than this it will be taxed at a lower rate. I asked the IRD on the phone if my portfolio makes 50% then am I only liable for 5%, which the nice man on the phone answered in the affirmative.

All in all this is good news for New Zealand investors. Also the fact that the New Zealand government lowered the income rates on October 1st, 2010 and offshore investing for Kiwis is looking more and more attractive.