The taxation of foreign superannuation funds in New Zealand has been an area that has caused much difficulty for many foreign migrants and returning residents. The incorrect application of New Zealand’s tax laws, or general non compliance, was common. Under the new provisions (introduced to Parliament today) a streamlined system will apply to the withdrawal, by New Zealand tax residents, of lump sums from foreign superannuation funds (this includes lump sum transfers to other funds in New Zealand or overseas).

For everyone who has not paid the correct tax the government is offering a partial amnesty. This applies to lump sum withdrawals or transfers from foreign schemes from 1 January 2000 to 31 March 2014.  The amounts must be included in the 2013/14 or 2014/15 tax return.

There are some cases where applying the existing law may yield a better result, however, these people will be liable for penalties and interest from the date that they did not pay the tax due (as an example, this could be from the year 2000).

The key message for those many people who have failed to correctly declare and pay tax in New Zealand, on their overseas superannuation income, is that you should deal with this now. The limited amnesty will only be available for a short time. Bearing in mind that liabilities and interest usually cause tax debts to double after the first three years (and then it gets worse after that) dealing with this now is the only option. If you have a concern about affording payment to the IRD, the correct thing to do would be to declare and then to seek a repayment arrangement. Doing nothing is likely to catch up with people given the IRD’s focus on international tax disclosure and avoidance.

If you are in a situation where double tax may apply, or if you are affected by New Zealand’s transitional tax system, please note that different considerations may also apply.

Generally the FIF rules will no longer apply (although they may continue to do so in certain circumstances where they have been consistently applied in the past).

Please talk to us in confidence if you have any questions.

The country you are a tax resident of normally has the right to tax your worldwide income. Becoming a tax resident of New Zealand usually requires that you are in the country for more than 183 days in a 12 month period, or that you have an enduring relationship with the country (even if you are in the country for less than 183 days).

It is harder to lose your tax residency status. If you are away from New Zealand for more than 325 days in a 12 month period you may lose your tax residency – unless you have retained enduring ties with New Zealand. If you have enduring ties in New Zealand you may remain a tax resident indefinitely, no matter how long you are out of the country.

Many people face issues with being deemed as tax residents of more than one country or they have uncertainty over which country they are a tax resident in. Double tax treaties provide a way to resolve these issues.

In other cases, tax residency is an important tax planning issue. As a migrant, high net worth investor, or an employee of a multi national company, you may have income of a particular type, or for a particular time period, that you either do or do not want to have taxed under New Zealand law. It is important to examine the implications for you before you take steps to relocate to or from New Zealand to ensure that valuable tax benefits aren’t lost.