Jeremy Tauri: Overseas pension? Prepare to pay up

The IRD are chasing tax on transferred pensions.

If you have transferred an overseas pension lump sum to New Zealand, be warned: the taxman wants to make sure you've paid your share of tax.

The IRD is writing to superannuation scheme holders asking for details of individuals who transferred their pensions to New Zealand between the periods April 1 2006 and the end of March last year.

Super scheme holders are in turn writing to their clients to let them know legally they are obliged to provide their details to the IRD including name, address, IRD numbers, amount and date of transfer.

From a sample of 869 individuals who transferred their pensions to New Zealand the IRD found that 70 per cent had not paid tax on the transfer.

Hundreds of thousands could be up for a tax bill and there are billions of dollars at stake.

The rules are complex and the super scheme provider will provide some general advice, however each person's circumstances are different and so it's recommended you get some advice on your situation.

There a tax exemptions available to people who transfer a lump sum to New Zealand within four years of becoming a tax resident here.

But what can you do if you've transferred a pension and know you haven't met your tax obligations?

Where an individual has not recorded and paid tax on their foreign superannuation scheme correctly there are a couple of options available.

You can reassess prior tax returns, which is relatively complex and will most likely incur more accounting fees, possibly interest and penalties on any underpaid amount of tax.

The other option is to take advantage of a concession that's available and pay tax on 15 per cent of the lump sum transferred. This calculation of income can be included in your 2014 income tax return.

If you engage an accountant or tax agent to complete the tax return you should be granted an extension of time to file this return, until March 31.

You should also be granted an extension to pay the tax until April 7.

New rules mean lump sums are taxed when they are withdrawn from the foreign super/pension scheme or when they are transferred to New Zealand, except when that happens during the first four years of a person's tax residency.