On 20 May 2013 the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill was introduced into Parliament.
The key proposal in the Bill is changes to the taxation of foreign superannuation with the aim of making the rules simpler and easier to comply with. The changes were first signalled in the July 2012 Official’s Paper Taxation of foreign superannuation and now reflect submissions received and consultation with interested parties.
The changes are expected to come into effect from 1 April 2014.
The changes will apply to:
- New Zealand residents with interests in foreign superannuation schemes;
- New Zealand residents who are new migrants;
- returning New Zealanders who have spent a number of years working overseas;
- New Zealand residents who have acquired an interest in a foreign superannuation scheme by other means (e.g., through inheritance or a relationship property agreement).
The proposed change is that gains from interests in foreign superannuation schemes will no longer be taxed under the foreign investment fund (FIF) rules. Instead the foreign superannuation schemes will be taxed when distributions are received under one of two new calculation methods: the schedule method or the formula method.
The change will apply to other distributions, such as a cash withdrawal from a scheme and the transfer of an interest in a foreign scheme to a superannuation scheme in Australia or New Zealand.
In addition, the following changes are proposed:
- Those transferring their foreign superannuation scheme interests into KiwiSaver will be allowed to make a withdrawal from the KiwiSaver scheme to pay their tax bill.
- Those who complied with the FIF rules in relation to their foreign superannuation before the introduction of the Bill on 20 May 2013 can continue to use the FIF rules in relation to that interest after 1 April 2014.
- Those who have made a lump-sum withdrawal or a transfer to another superannuation scheme between 1 January 2000 and 31 March 2014 but who did not comply with their tax obligations at the time have the option to pay tax on only 15% of the lump sum amount.
The proposed changes do not apply to:
- pensions or annuity payments (which will continue to be assessable under the current rules);
- a transfer by a person from one foreign superannuation scheme outside Australia to another scheme outside Australia.
The reason for the proposed changes is due to the complexity of the current rules for taxing New Zealand residents on their foreign superannuation. Under the current rules, some superannuation interests are subject to tax on accrual under the FIF rules. In other cases, superannuation interests are taxed on receipt depending on the legal structure of the foreign scheme (such as whether the scheme is structured as a company or a trust). The tax treatment differs according to which set of rules applies and it is not clear that the rules result in a fair outcome to the taxpayer.
If you have any questions, please contact your Hayes Knight advisor or the tax team:
Shelley-ann BrinkleySenior Tax Manager
T +64 9 414 5444
Phil BarlowTax DirectorT + 64 9 414 5444