Foreign Investment Funds (FIF) Tax

What Is the Foreign Investment Funds (FIF) Tax?

Foreign Investment Funds Tax or the FIF tax is a term that refers to an Australian tax tariff.

The Foreign Investment Funds Tax or the FIF tax was imposed on Australian residents by their government. The tariff taxed any asset value gains from offshore holdings. The Australian government implemented the FIF tax in 1992.

Understanding the Foreign Investment Funds (FIF) Tax

The Foreign Investment Funds Tax had a reputation for being fairly controversial and complicated, known for a variety of exceptions and loopholes. The FIF tax prevented citizens from deferring the payment of Australian tax on investments made outside of the country. 

Investments that might have potentially fallen under the FIF tax include personal retirement funds, such as American IRAs and Canadian RRSPs, as well as life insurance wrappers, which are often sold by overseas advisors. In addition, the FIF tax applied to any income from foreign companies that were controlled by foreign citizens.

Since 2010 the Foreign Investment Funds Tax has been repealed and replaced with different tax regulations. Now when Australian residents receive distributions from a foreign investment fund, the Australian government taxes the fund at the same rate as they tax the foreign investment fund’s domestic equivalent, and the FIF adheres to the same specific tax regulations. So if an individual who is an Australian citizen has any income from a FIF, they would use the already existing regulation in Australian tax law.

For example, if you are an Australian citizen and have an investment in a United States-based trust, you would use the general Australian taxation regulation on trust funds when filing and paying your taxes.

Special Considerations

The Australian government retained specific aspects of the FIF tax to make sure Australian citizens do not experience double taxation. Double taxation is a taxation principle that refers to a situation in which taxes are paid twice on a single source of income, which can occur in both corporate and personal tax situations.

Generally unintended, double taxation occurs in a variety of circumstances. Double taxation also happens in international trade, when two different countries tax the same income, which applies to the funds that are subject to the FIF tax.

By keeping some of the rules of the FIF tax, while moving other parts of the law to the general Australian tax code, the Australian government hopes to close tax loopholes and integrate the taxation system, so that the income earned is in the end taxed at the same rate.