Proposed tax changes for foreign super
Recipients of overseas superannuation schemes are being urged to pay attention to proposed new tax rules.
The Taxation (annual rates, foreign superannuation and remedial matters) Bill passed its second reading in Parliament earlier this week.
Changes propose a "simpler and fairer system" by which foreign superannuation is taxed if recipients receive it as a lump sum when transferring funds to New Zealand.
Previously tax only applied if gains were made on foreign superannuation investments. In the year to 2011 the number of people claiming superannuation increased from 502,000 to 571,000.
But IRD says of the number of superannuitants who receive an overseas pension, 70 per cent are not paying the right tax or any at all.
Charter Square is a company specialising in international pension transfers and its director Simon Swallow says under the current rules most people aren't aware they have tax obligations in New Zealand. "The rules have been grey but the IRD has interpreted them as being black and white," he says.
"Most people are using PAYE in the UK and they're not aware they have a tax obligation. You might be talking about nurses and policemen who wouldn't have the need for a tax accountant."
While there won't be penalties for those who haven't paid the tax, concessions will be made for a short period for those who made a lump sum withdrawal or transfer before April 1, 2014.
Instead of declaring all of their overseas pension income, pensioners can just declare 15 per cent of it.
After that people will be taxed based on a schedule or a formula method with different taxation rates according to how long they have been in the country.
Mr Swallow says it will be a sensible option for people to start transferring their pension to New Zealand.
"They should do it as fast as possible in order to avoid a big liability in the future, particularly if they've been here for 10 years or more because the inclusion rate for them will be a lot bigger after April 1."