Tax amnesty on transferred pensions

Sybrand van Schalwyk of Staples Rodway says returning migrants with offshore pension funds should take advantage of an IRD amnesty or face penalties. Photo / George Novak

Returning expatriates and new migrants who have transferred foreign pension schemes to New Zealand face potential tax penalties if they fail to take advantage of an Inland Revenue Department (IRD) amnesty on non-compliant returns.

"We've seen a lot of Bay of Plenty people falling into the category and often it's big figures," said Sybrand van Schalkwyk, senior tax manager with Staples Rodway Tauranga.

"We've written to all our potentially affected clients advising them to take up the amnesty, but we're concerned about people who don't have an adviser, who may have pulled their pension over, not paid tax on it and didn't get caught out."

The amnesty option was to declare 15 per cent of the transferred untaxed pension as taxable income.

Unofficial IRD estimates put non-compliance as high as 70 per cent of all taxpayers with transfers from offshore super funds. The IRD is closing in on those who did not apply the correct law as it stood prior to April 1, 2014, or who have not taken up the 15 per cent amnesty provision, said Mr van Schalkwyk.

The IRD has provided a new box in tax returns for 2014-15 for taxpayers so they can tell whether they are exercising the amnesty option.

Mr van Schalkwyk said that before April 2014, the rules were "very murky." They had now been clarified, but many people who had transferred their pensions after 2000, but prior to April, 2014 were potentially affected.

Compliance with the old rules meant foreign pension fund holders had paid tax on their investments on a yearly basis. If they cashed out their pension prior to April 1, 2014 this meant that no further tax would be payable, because they had already paid the tax on a yearly basis. Alternatively, if they were able to exercise specific annual exemptions in the old rules, then they would generally pay tax on the lump sum when they cashed the foreign pension scheme out.

When the IRD started looking at these rules, it became clear that non-compliance by foreign pension fundholders was widespread. They were offered the option of going back to open past returns, and file them according to the rules that applied at the time, or they could choose to include 15 per cent of the transfer as taxable income.

"We understand that IRD is opening tax audits which will expose the taxpayers who have decided not to comply to penalties," said Mr van Schalkwyk. "This is a turkey shoot from the IRD's perspective."

Don Stewart, partner at Rotorua's Nairn Fisher, said non-compliance was not a major issue for the firm's clients. But he noted the formula for assessing tax on foreign pensions was complex.

"People really need to see their adviser and if they have any doubt and get it all worked out."