Determination the fair dividend rate method may not be used to calculate FIF income by investors in the Nuveen Global Sustainable Bond Fund – Class X NZD Distributing (H) share class

Reference

This determination is made under section 91AAO(1)(b) of the Tax Administration Act 1994. This power has been delegated by the Commissioner of Inland Revenue to the position of Technical Specialist under section 7 of the Tax Administration Act 1994.

Discussion (which does not form part of the determination)

Shares in the New Zealand Dollar (“NZD”) denominated class of the Nuveen Global Sustainable Bond Fund (“the Fund”), an Irish Managed Investment Scheme, are an attributing interest in a foreign investment fund (“FIF”) for New Zealand resident investors when none of the exemptions in sections EX 29 to EX 43 of the Income Tax Act 2007 apply. The Fund is a sub-fund of the Nuveen GIF and is incorporated under the laws of Ireland. 

Nuveen GIF is structured as an umbrella fund with segregated liability between sub-funds. These sub-funds do not have a separate legal personality.

The Fund invests in a portfolio of international fixed interest securities (global bonds) and other financial arrangements. The Fund has on issue a number of share classes, including the NZD Hedged share class, that provides holders of that class of units with an interest in the pool of investments held by the Fund. Foreign currency hedging arrangements are in place which effectively provide investors in the NZD Hedged share class with an NZD denominated return on the financial arrangements and other investments held by the Fund.

New Zealand resident investors are required to apply the FIF rules to determine their tax liability in respect of their investment in the NZD Class of the Fund each year.

Section EX 46(10)(c) of the Income Tax Act 2007 does not apply to prevent the use of the FDR method for interests in the NZD Class of the Fund given that the Fund does not have a distinct legal personality separate from Nuveen GIF. As such, the entire portfolio of Nuveen GIF is taken into consideration when examining whether the 80% test is satisfied. However, Section EX 46(10)(c) would apply to prevent the use of the FDR method if the Fund represented a separate foreign company and the NZD Class was the only class of share on issue.

The policy intention is that the FDR method of calculating FIF income should not be applied to investments that provide a New Zealand resident investor with a return similar to a New Zealand dollar denominated debt investment. It is appropriate for the Commissioner to take into account the whole of the arrangement including any interposed entities or financial arrangements in ascertaining whether an investment in a FIF provides the New Zealand resident investor with a return akin to a New Zealand dollar denominated debt investment.

On that basis, where a New Zealand resident invests in the NZD Class of the Fund, and hedging to NZD is undertaken by the non-resident issuer, I consider that it is appropriate for them to be excluded from using the FDR method.

Scope of determination

This determination is issued on the basis of information provided to the Commissioner before the date of this determination. It applies to an attributing interest in a FIF held by New Zealand resident investors in a non-resident issuer where:

• This non-resident issuer:
  • is incorporated in Ireland and issues multiple classes of shares; and
  • is known at the date of this determination as Nuveen GIF; and
  • is structured as an umbrella fund with segregated liability between sub-funds.

• The attributing interest consists of the NZD class of share, issued in Nuveen Global Sustainable Bond Fund, a sub-fund of Nuveen GIF. This class of shares provides exposure solely to a portfolio predominantly of fixed interest securities and other financial arrangements;

• The non-resident issuer maintains a facility to hedge their interest in the NZD Class of the Fund to NZD. The facility will remove 80% to 125% of the foreign currency risk for the attributing interest and be entered with the sole purpose and net effect of offsetting exposure to the foreign currency exchange movements.

Conditions applying to this determination

It is a condition of this determination that the investment in the Fund and hedging undertaken by the non-resident issuer are part of an overall arrangement that seeks to provide the New Zealand resident investor with a return that is economically equivalent to a debt instrument denominated in New Zealand dollars.

In addition, it is a condition of this determination that an investor will not be excluded from using the FDR method to calculate FIF income from an interest where the absolute value of the Fund’s investment in global fixed income securities (directly or indirectly via derivatives) plus the fair value of the related hedges plus cash and cash equivalents (together referred to as “the numerator”) is 80% or less than the combined total of the numerator plus the absolute nominal value of other derivatives (together referred to as “the denominator”) for a continuous period of 45 days. For the purposes of calculating the numerator and denominator hedging to NZD is excluded. Should this occur, the determination will cease to apply from the first day of the quarter immediately following the expiry of the 45-day period. 

Interpretation

In this determination, unless the context otherwise requires –

"Fair dividend rate method" means the fair dividend rate method under section YA 1 of the Income Tax Act 2007;

"Financial arrangement" means financial arrangement under section EW 3 of the Income Tax Act 2007;

"Foreign investment fund" means foreign investment fund under section YA 1 of the Income Tax Act 2007;

“New Zealand resident” means a person that is resident in New Zealand for the purposes of the Income Tax Act 2007;

"Non-resident" means a person that is not resident in New Zealand for the purposes of the Income Tax Act 2007;

"The Fund" means the Nuveen Global Sustainable Bond Fund, a sub-fund of Nuveen Global Investors Fund Public Limited Company.

Determination

Subject to the conditions recorded above, an attributing interest in a FIF to which this determination applies is a type of attributing interest for which a person may not use the fair dividend rate method to calculate FIF income from the interest.

Application Date

This determination applies for the 2025-2026 income year and subsequent income years.

Under section 91AAO(3B) of the Tax Administration Act 1994, this determination does not apply for a person and an income year beginning before the date of issue unless the person chooses that the determination applies for the income year.

Dated on this 8th day of October 2025.


Iain McConville
Technical Specialist