Changes are afoot with the tax treatment of foreign superannuation schemes.
The Government has introduced a bill to make changes to the way it taxes income from foreign superannuation schemes. The changes will apply to the following people:
- New migrants who are New Zealand residents
- New Zealand residents with foreign superannuation schemes
- New Zealanders returning after working for a number of years abroad
- New Zealanders who may have an inherited an interest in a foreign super scheme
The main changes are quite technical. Currently, any gains on foreign superannuation schemes are taxed using the Foreign Investment Fund (FIF) rules. These are quite complex and onerous to administer, even for accountants. It is also arguable that the existing rules are not particularly fair.
The proposal would see foreign investment funds taxed when distributions are received under one or two new methods of calculation. In addition, the changes will apply to a cash withdrawal of funds or where an investor transfers to a superannuation scheme in New Zealand or Australia.
We like a few of the features of the proposed changes. For instance:
- If you are already using the FIF rules, you’ll have the choice to continue to do so or opt into the new rules.
- If you transfer to a New Zealand Kiwisaver scheme, any tax liabilities could be paid out of the Kiwisaver fund so there would be no need to find additional cash to meet a tax liability.
- If you made or will make a transfer or withdrawal from a foreign super scheme up between 1 January, 2000 and 31 March, 2014 and fail to comply with the existing rules, you’ll be able to settle your affairs by paying a flat 15% on the lump sum amount.
Annuity payments or pensions will continue to be assessed using the current FIF rules.
The proposed changes are not law yet and we will keep you posted – changes can occur in the Select Committee process. It does seem that some common sense is coming to the vexed area of foreign superannuation funds.