Clarity brought to issue of transfer of offshore pensions

There’s new clarity on tax for advisers who have clients with foreign superannuation scheme interests.

The new Taxation Bill aims to simplify the system by introducing a new cash-based regime to tax interests in foreign schemes. It also contains a partial amnesty for people who have withdrawn a lump sum or transferred it into a New Zealand scheme without declaring it to Inland Revenue as income.

Chapman Tripp senior associate Emma Harding said the system had been very complex and hard to understand. “Anecdotally, some people were not paying tax or didn’t realise they were liable.”
She  said they would predominantly be British immigrants, or New Zealanders who had worked in Britain, although people from Canada, the United States and other countries would also be affected. The changes do not alter the looming transtasman superannuation portability regime.

Under the new regime, a person will only be taxed when they receive a withdrawal from the scheme, or when they transfer it to a New Zealand or Australian superannuation scheme. The withdrawal is tax-free if it is made within the first 48 months of residency in New Zealand.

Outside that period, if the saver has information on the rate of growth since they moved to New Zealand, they can opt to be taxed on it under the formula method. Otherwise, they will be taxed under the schedule method, where a percentage of each withdrawal is treated as taxable income.

The IRD had earlier caused alarm by suggesting that immigrants would have to pay tax on the growth of their funds from the start, not from the point the person moved to New Zealand.

Taxpayers who are already filing tax returns on foreign schemes under the FIF regime can choose to continue or move to the new cash-based system.

Harding said it would  be a much more straightforward system but the change would draw attention to tax obligations that people might not have known about. “This will bring the issue to the forefront of people’s minds. The rules were very complicated, [IRD] had to come up with a hard and fast rule.”

People who have made withdrawals since 2000 and before April 1 next year and not paid tax on them will be allowed to pay tax on 15% of the amount withdrawn. This must be included in tax returns before 2015.

Harding said it might be worth encouraging people to withdraw before next April if 15% was a lower percentage than would be taxable under the new provisions.

Sourced from http://www.goodreturns.co.nz/article/976500949/clarity-brought-to-issue-of-transfer-of-offshore-pensions.html

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