New Zealanders who have money saved in Australian superannuation schemes should think carefully before choosing to bring their money home, says a financial adviser.
Transtasman superannuation portability came into effect at the start of this month, meaning Kiwis can now transfer their Australian nest-eggs back into participating KiwiSaver schemes, and vice versa.
Greg Moyle, from New Zealand Financial Planning, said the agreement appeared at first glance to be an excellent opportunity for Kiwis to consolidate their retirement funds.
But he warned that such funds could be subject to higher tax rates if brought back to New Zealand.
"Australian Superannuation funds have for many years enjoyed a favourable tax treatment when it comes to paying taxation on income," Moyle said.
Investors generally pay a flat rate of 15 per cent on income earned in Australian super schemes, irrespective of their income level.
In New Zealand, the tax rate on income earned in a KiwiSaver scheme was dependent upon each person's prescribed investor rate (PIR), Moyle said.
A person earning below $14,000 a year would only pay 10.5 per cent, but higher income earners paid either 17.5 per cent or 28 per cent. "This is not just one size fits all. Everyone will find themselves in a different situation," Moyle said.
He said it would make better sense for some people to leave their funds in Australia until they either retired or their taxable income from employment dropped below $14,000.
"For young people who may have worked only a few years in Australia, it would probably make sense to shift it across to New Zealand.
"But if you're someone in your 50s or 60s, you might have a substantial amount of money in Australia and need to think again. You may be better off staying with them because the tax you pay is substantially less than the tax you'll pay here."
Investors should also weigh up the differences in fees, performance returns, and movements in the cross rate between the Kiwi and Australian dollars, Moyle said.
Chris Douglas, co-head of research for Morningstar Australasia, agreed that people should think twice before deciding to transfer savings across the Ditch.
"If you do have a large nest egg in Australia, then seeking advice makes a lot of sense."
Douglas said Australia's tax structure provided incentives for long-term investors, meaning the tax bill was essentially halved if a person held their investment for longer than 12 months.
"So investing in a superannuation product can be tax effective."
He said the tax paid on KiwiSaver could depend on the geography of the assets.
"If your KiwiSaver fund is invested only in New Zealand or Australian equities, then you only pay tax on the income distribution of the investments, the capital gains are tax free."
Most KiwiSaver funds were a broad mix of assets and geographies though, Douglas said.
The Australian Tax Office estimates there is about A$17.7 billion ($20 billion) in "lost accounts" in the Australian superannuation system, much of which is thought to belong to New Zealanders.