Fair dividend rate (FDR) explained, with worked examples

The fair dividend rate (FDR) is the default way to work out FIF income. The formula is short: 5% of the total market value of your FIF holdings at the start of the income year, usually 1 April, plus a quick sale adjustment if you bought shares and sold them again in the same year (IR461 p11; ITA s EX 52(3)). What happens to the share price during the year, and what dividends you receive, do not change the figure. This guide works through the formula, the edge cases and the tax.

The formula

Inland Revenue states it as: FIF income = (0.05 × opening market value) + quick sale adjustment (IR461 p11; ITA s EX 52(3)).

• The rate is fixed at 5%. It is written into the Act as “0.05”, so unlike the deemed rate of return it does not change each year (ITA s EX 52(3); IR461 p14).
• Opening market value is the total market value of the FIF interests you hold at the start of the income year, which is 1 April for a standard balance date (IR461 p11; ITA s EX 52(5)).
• The quick sale adjustment only applies if, in the same year, you acquired or increased a holding and later sold or reduced it (ITA s EX 52(6); IR461 p15).

Market value is generally the exchange price. Published unit prices or a redemption value may be used for funds, but an exit value that carries an early withdrawal penalty is not acceptable (IR461 p13).

The name is a little misleading. FDR does not tax the dividends you actually receive. It assumes a “fair” return of 5% on what you held at the start of the year, and taxes that instead.

Worked example: a simple year

Your overseas shares and ETFs were worth $120,000 on 1 April 2025. You made no trades in the 2025/26 year. Through the year they rose to $135,000, and you received $2,400 of dividends.

The $15,000 rise and the $2,400 of dividends do not appear anywhere. If the portfolio had fallen to $100,000 instead, FDR income would still be $6,000; that is the year when an individual would look at comparative value instead (see FDR or CV).

The tax figures use the 2025/26 rates. With $95,000 of other income, every extra dollar falls in the 33% band. With $50,000, the first $3,500 is taxed at 17.5% ($612.50) and the next $2,500 at 30% ($750.00). Run your own figures in our FDR calculator.

Cents and whole dollars

FDR figures often come out with cents. If your opening value was $123,785.20, FDR income is $6,189.26. Taxable income on the IR3 is in whole dollars, so the tax is worked out on $6,189: with $95,000 of other income that is $2,042.37 at 33%. Our calculators keep the cents in the FIF income figure and drop them only when working out tax, which is the site’s stated rule.

What FDR ignores, and what it does not

Under FDR, “dividends and capital gains are not usually taxed separately. However, this does not apply to fee rebates, which should be returned as additional income” (IR461 p14). So:

• dividends from your FIF holdings are already covered by the 5% and are not added again (IR3G p21);
• gains on sale are not taxed separately;
• losses on sale cannot be claimed, and FDR can never produce a loss (IR461 p19);
• fee rebates paid to you are extra income.

Shares you buy during the year have no opening value, so they produce no FDR income that year unless a quick sale adjustment applies. Shares you sell during the year still produce FDR income on their opening value, because they were held on 1 April (IR461 p22 note 6). In other words, FDR looks at a single snapshot: what you held at the start.

That snapshot can bite in a falling year, and it can also help in a rising one. If you added $50,000 of new money in May and the market then rose 20%, none of that shows up in this year’s FDR figure.

Buying and selling in the same year

Without a special rule, you could buy shares after 1 April and sell them before 31 March with no FDR income at all. The quick sale adjustment closes that gap. It is the lesser of two totals across all your FDR holdings: the peak holding amounts (5% × peak holding differential × average cost) and the quick sale gains, with a negative gain total treated as zero (ITA s EX 52(7) to (13)).

Inland Revenue’s own example (IR461 p15): Company A, 10,000 shares worth $200,000 at the start of the year. The investor buys 5,000 for $110,000 on 1 October, sells 4,000 for $100,000 on 1 December, and buys 2,000 for $44,000 on 23 December.

Our engine reproduces this result exactly. The quick sale adjustment guide goes step by step, including last in, first out matching.

The all-holdings rule and non-ordinary shares

If you use FDR for one investment, you must use it for all your FIF investments that year, unless the law stops you (IR461 p14). You cannot put your winners on FDR and your losers on CV.

FDR cannot be used for “non-ordinary” shares: fixed-rate shares, non-participating redeemable shares, entities with 80% or more of their assets in New Zealand dollar or hedged fixed-rate assets, guaranteed-return shares, certain structured arrangements, and shares the Commissioner determines (IR461 p16; ITA s EX 46(8) and (10)). Those must use CV, or the deemed rate of return if CV is impractical. They are rare in a typical share portfolio.

Inland Revenue also mentions a periodic FDR method, generally used by unit trusts, which IR461 does not cover (IR461 p14). New Zealand PIE funds can use FDR on the overseas shares they hold (ITA s EX 52(5B)), which is why so many PIE funds investing overseas pay tax at your PIR on roughly 5% of value; see PIE funds versus direct shares.

Converting the opening value

FDR needs the 1 April value in New Zealand dollars. You choose one exchange rate method and apply it consistently (IR461 p13). Our default uses Inland Revenue’s published rates: the opening value is converted at the end-of-month rate for 31 March of the previous year.

For example, US holdings worth US$30,000 on 1 April 2025, at IRD’s end-of-month rate of 0.5710 US dollars per NZ dollar for 31 March 2025, are NZ$52,539.40 (divide, do not multiply). FDR income is $2,626.97. The exchange rates guide explains the other methods, and our rates tool finds the figure for each currency.

A short checklist

1. Check you are over $50,000 on cost on any day of the year (threshold checker).
2. List every FIF holding you had on 1 April with its market value, converted to NZ$.
3. Take 5% of the total.
4. If you bought and sold the same holding within the year, work out the quick sale adjustment.
5. If you are an individual or family trust, also work out CV and use whichever gives lower income.
6. Put the result in box 17B of your IR3 (how to file).

Rules checked 12 November 2026. General information, not tax advice; check with your accountant.

Questions

Is the fair dividend rate always 5%?

Yes. The 5% is written into the Income Tax Act (s EX 52(3)), so it does not change from year to year.

Can FDR give me a loss in a bad year?

No. FDR cannot produce a loss, and losses on sale cannot be claimed under it (IR461 p19). An individual can use comparative value instead in a year when it gives lower income.

Do I add my dividends to FDR income?

No. Dividends and gains from FIF holdings are not taxed separately under FDR (IR461 p14). Fee rebates are the exception and are returned as extra income.

What if I sold everything in June?

You still have FDR income on the 1 April value of what you sold, because you held it at the start of the year (IR461 p22 note 6).