Inland Revenue is getting ready to clamp down on thousands of New Zealand residents who haven't been paying tax on withdrawals from their overseas superannuation schemes.
The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill which sets out new tax rules on overseas superannuation schemes passed its first reading in Parliament yesterday.
The legislation is a response to concerns that as many as 70 per cent of New Zealand residents who have overseas superannuation schemes have not been paying the right amount, or indeed any tax, when they withdraw money.
The existing rules are complex and some people may have been advised their overseas superannuation schemes were tax exempt.
In some cases one group of savers treating their foreign super schemes as "foreign investment funds" under present rules may have been paying just 1.65 per cent tax on any investment gains on their overseas superannuation.
Others could pay up to 30 per cent tax on lump sum payments from superannuation savings held in a trust structure, IRD analysis suggested.
Under the new law, savers will no longer be able to treat foreign superannuation savings as foreign investment funds but will either pay tax on investment gains when they receive lump sum payments from those schemes or transfer them to New Zealand or Australia.
Any annuity or pension payments from foreign super funds will continue to be taxed under current rules.
The new legislation includes measures to allow those who haven't been following rules to come into line by paying appropriate penalties and interest or by paying tax on 15 per cent of a previous withdrawal from their foreign super scheme.