The New Zealand Inland Revenue (IR) is re-writing the taxation rules for foreign superannuation schemes (foreign schemes) and intends to introduce new, ‘simplified’ rules from 1 April 2014.
IR is aware that the existing rules relating to foreign schemes are complex and this complexity has resulted in a high level of non compliance. The new rules focus on taxing distributions from foreign schemes, so anyone who has funds in a foreign scheme will be taxed whenever and however they take a benefit or distribution. This is regardless of whether the benefit is in the form of an income payment, a lump sum withdrawal or a transfer to a New Zealand or Australian superannuation scheme.
Thus, if you are a NZ resident, and you have a UK pension which has not been declared in your NZ tax returns, then you may have a tax liability – even if you have not yet withdrawn or transferred your UK pension.
IR is reviewing the position of individuals who have funds in a foreign scheme who may not have fully complied with the existing rules. As part of the review IR is offering an amnesty, under which anyone who has not complied with the existing rules can:
- Re-assess their tax returns for prior years where they did not correctly treat their foreign scheme; or
- Apply a flat 15% on any amount withdrawn or transferred and return this as assessable income in their 2014 tax return. The individual’s resident withholding tax rate would be applied to the 15% portion declared as assessable income.
Different approaches may suit individuals based on their specific circumstances. For example, if you have been resident in NZ for less than 3 years then it is likely that the assessable income would be less than 15%. Thus, you should work through what the assessable income would have been under the existing rules, provided you have the valuations and information available, to ensure this is less than a flat 15%. However, if you have been resident in NZ for 3 or more years, it is likely that the assessable portion of your pension would be more than 15%. Thus, the amnesty may present an opportunity for you to transfer your foreign scheme into a NZ scheme and limit any assessable income calculation by electing the 15%.
If you are a “transitional resident”, then you can transfer your foreign scheme with no assessable income, so long as you complete the transfer within the 4 year transitional period which gives you “transitional resident” status. Please note returning “Kiwi’s” must have been out of New Zealand for more than 10 years to meet transitional resident rules.
For any transfer related queries, please call John Gold of Craigs Investment Partners on 09 970 2197. For tax specific advice, we encourage you to seek the advice of a tax professional.