Foreign Investment Fund (FIF) Rules

[Note : In the 2009 Federal Budget the Australian Government announced an intention to "repeal and replace the foreign investment fund (FIF) provisions with a specific
narrowly defined anti-avoidance rule" - see our page on the Australian 2009 Budget.  There are now (2010) some draft recommendations in the public arena, and when there is sufficient clarity around them we will publish a summary of the intended changes]

One particular tax issue that regularly causes concern and some confusion for many expatriates returning to Australia is the application of the foreign investment fund (FIF) rules. These rules were introduced by the Government as a means of stopping individuals from deferring the payment of Australian tax on foreign investments.

The rules are stringent and may require you to bring to account the increase in the market value of your foreign held assets from year to year. You will be taxable on the increase in the value of the assets which means you could be paying Australian tax on unrealised foreign capital gains. Structures that can fall within the definition of FIF funds include personal pension funds (eg American IRA's, Canadian RRSP's and British ISA's) and "life insurance wrappers" which are often sold by overseas adviors.

A number of exceptions do apply for shares held in listed foreign companies. However, not every listed foreign company is eligible for exemption. You should check with an Australian tax advisor, preferably prior to any return, as to whether investments you hold will be subject to the FIF rules.

Please note that the FIF rules do not apply to foreign real estate investments or foreign bank accounts or foreign employer superannuation funds.  They can be extremely complicated and you are strongly recommended to seek professional advice regarding the application and interpretation of the rules.

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