Dunne: feedback sought on proposals for taxing foreign super
An officials’ issues paper released today contains proposals which should help new immigrants and returning New Zealanders understand their tax obligations more clearly around their foreign superannuation entitlements, Revenue Minister Peter Dunne said today.
He said that migrants settling in New Zealand or New Zealanders returning after working off shore often do not understand our tax rules applying to pension schemes they set up in another country.
“For the most part, people comply with their tax obligations, but being able to understand those obligations is the critical point,” Mr Dunne said.
“The main objective of the proposals in the issues paper is to simplify the tax treatment of foreign pensions and foreign pension schemes by providing a more uniform treatment than the present, rather complex situation,” he said.
It is proposed that from the 2011/12 year:
- tax would be payable when a person receives a pension or lump sum, or transfers a lump sum to another scheme (rather than on an annual basis)
- periodic pensions would continue to be taxed as they currently are
- a portion of any lump sum amount would be taxed depending on the length of time between when a person arrived in New Zealand and when they withdraw or transfer their lump sum.
Mr Dunne said the proposed rules also address certain transitional issues:
- People who withdrew or transferred a lump sum between 1 January 2000 and 31 March 2011 would be able to choose to use a simple “short-cut” option with a low effective tax rate, as long as they disclose this to Inland Revenue before 1 April 2014.
- People who declared income before 31 March 2012 on their foreign superannuation under the foreign investment fund (FIF) rules for the 2010–11 year would continue to apply the FIF rules. They would not be subject to the proposed new rules.
In general, lump sum transfers from an Australia superannuation scheme are tax-free under the Australia-New Zealand double tax agreement. This will not be changed under these proposals, Mr Dunne said.
“The arrangement between Australia and New Zealand on the trans-Tasman portability of retirement savings, under which transfers to KiwiSaver will be tax-free when the arrangement comes into force, will also be preserved.
“New Zealand is a great country to live, work and eventually retire in. The proposals in this issues paper should make it simpler for people to bring their pension schemes with them from different parts of the world,” Mr Dunne said.
He said submissions are invited on all matters raised in the issues paper, but particularly in relation to the transitional arrangements.
The issues paper and an accompanying fact sheet are available at www.taxpolicy.ird.govt.nz/publications/2012-ip-foreign-super/overview
Mark Stewart | Press Secretary | Office of Hon Peter Dunne
Cell +64 21 243 6985