By Shelley-ann Brinkley – 24 September 2012

Currently foreign superannuation is taxed either on an annual basis under the “Foreign Investment Fund” (FIF) rules, or at the time the taxpayer receives the income (i.e. a pension payment, a lump sum withdrawal, or a transfer to another scheme). This could be changing.

There is currently a proposal to replace the existing rules with a single set of rules, which would be fair and simple from a compliance perspective.

Under the proposed new rules:

  • the FIF rules would no longer apply,
  • all pension payments would remain taxable on full receipt, at the individuals marginal tax rate,
  • lump sum withdrawals or transfers would be partially taxed on receipt, using an “inclusion rate approach”. The excluded amount would not be taxable.

The amount that is taxable would depend on:

  1. the length of time between when the individual arrives in NZ, and
  2. when they withdraw or transfer the superannuation.

Generally, the longer the deduction, the greater the amount that would be included in the individual’s taxable income.

The temporary tax exemption for transitional residents will continue to apply to receipts of foreign superannuation schemes, as will certain rules that exempt Australian superannuation.

Once enacted, the legislation will apply retrospectively to income received from a foreign superannuation scheme on or after 1 April 2011. This includes pension payments, withdrawals and transfers to other schemes.

There is an exception available from the proposed new rules for those whose interest in a foreign superannuation scheme was taxed under the FIF rules in the 2010-11 income year or earlier years, and the income was returned by 31 March 2012. Those to whom the exception applies would continue to have their interest in a foreign superannuation scheme taxed under the existing FIF rules. They would not be taxed on any subsequent distributions under the new rules.

Separate rules may apply to transfers or withdrawals of foreign superannuation made between 1 January 2000 and 31 March 2011.

If you have any concerns regarding foreign superannuation schemes, we recommend that you seek advice from your Hayes Knight adviser. Alternatively, please contact our Tax Team:

Phil Barlow
Tax Director
T + 64 9 414 5444
E phil.barlow@hayesknight.co.nz

Shelley-ann Brinkley Senior Tax Manager
T +64 9 414 5444
E shelley-ann.brinkley@hayesknight.co.nz

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