New Zealanders wanting to bring back their overseas superannuation should get in quick. New tax rules coming into force on April 1 may significantly increase your tax bill.
On this date, foreign superannuation lump-sum payments must be declared as income by Kiwi recipients, meaning they will be taxable. But there is a brief window of opportunity to take advantage of a special tax concession if you apply to transfer your super on or before March 31. The concession allows you to include just 15 per cent of the lump-sum payments in your tax return, rather than the normal 100 per cent. At a marginal rate of 33 per cent, you would face a tax bill of up to 4.95 per cent of the lump sum's value.
This means if you transfer, say, $100,000 to New Zealand before March 31, your tax bill will be $4950. After that date - and without the concession - your tax could be as high as $33,000.
New Zealand's tax treatment of lump-sum transfers and withdrawals of overseas superannuation (excluding regular pension payments) has been uncertain for some time.
Under current law, you may be required to pay tax annually on the value of the overseas superannuation under New Zealand's foreign investment fund (FIF) rules. If so, you would not be taxed again when transferring or withdrawing your superannuation in cash.
Alternatively, if the FIF rules do not apply, you would be required to account for tax on a receipts basis. The lump sum would likely be treated as a dividend for tax purposes, where the worst case scenario would see the whole amount taxed.
Typically, someone transferring overseas superannuation to New Zealand would need to calculate the taxable income and include that in their tax return. However, during a 2011 review, the Inland Revenue Department discovered most people - estimated at up to 70 per cent - had not reported the income or paid any tax.
The high degree of non-compliance was largely inadvertent and was exacerbated by pension transfer agents, who transfer superannuation to New Zealand and who incorrectly advise their clients there is no tax to pay.
Inland Revenue's response has been to simplify the tax rules. With few exceptions, all overseas superannuation will be taxed on receipt. The new rules were enacted last month and take effect on April 1.
Apart from the concession, the options available from April 1 need to be considered. Transfers received in the first four years after you arrive in New Zealand are tax exempt. If this exemption is not available, tax will be determined under one of two new calculation methods. These differ in their approach and, in most cases, would be expected to provide different tax outcomes.
Because of the range of options available, if you are considering bringing your overseas superannuation back to New Zealand, the time to act is now. After April 1, your choices will be more limited.