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C & D

Overseas Investments and Pension Transfers

It is not uncommon for New Zealanders to have overseas investments. Commonly these are often held in the form of pensions, especially in the United Kingdom and Australia. Migration to New Zealand, working holidays overseas and inheritances can all lead to investment assets being held outside the country.

If your overseas investments have a value greater than $50,000, they could well be liable for tax in New Zealand. This is called a Foreign Investment Fund (FIF) tax. There are a number of options you can choose from as to how this tax is calculated. Certain overseas investments, particularly Australian shares that are included in the ASX 200 and have franking credits, are exempt from FIF tax.

New residents to New Zealand and New Zealanders, who have not been living in New Zealand for ten years, do not need to pay tax on their investments for their first four years after their arrival in New Zealand. This area is not straight forward, as is much of the tax legislation. For example, income from their investments can be taxable.

Recently there have been announcements relating to the taxation of pensions transferred to New Zealand. The new Taxation Bill aims to simplify the system by introducing a new cash-based regime to tax interests in foreign schemes. It also contains a partial amnesty for people who have withdrawn a lump sum or transferred it into a New Zealand scheme without declaring it to Inland Revenue as income.

Under the new regime, a person will only be taxed when they receive a withdrawal from the scheme, or when they transfer it to a New Zealand or Australian superannuation scheme. The withdrawal is tax-free if it is made within the first 48 months of residency in New Zealand.

People who have made withdrawals since 2000 and before April 1 next year and not paid tax on them will be allowed to pay tax on 15% of the amount withdrawn. This must be included in tax returns before 2015. No doubt this will cause some anxious nights for some. It was quite common for those transferring pensions to withdraw around 40% of the money transferred. It could be quite a revenue generating exercise for IRD and quite simple for them to track down via the QROP scheme providers.

From July this year, monies held in Australian Superannuation Funds will be able to be transferred to some KiwiSaver funds. The capital amount transferred will be able to be withdrawn from the age of 60. This is five years earlier than the ‘normal’ KiwiSaver contributions made into the investor’s fund, and the capital growth can be withdrawn.

There appears to be a slight catch. The investor would not benefit from the investments being tax free for the first four years after arriving in New Zealand, as KiwiSaver funds cannot have both a 0% PIR rate for the money transferred from overseas and a PIR rate applicable for the investors ‘normal contributions’.

If you have overseas investments, or have had pensions transferred to New Zealand or are considering doing so, there are a number of issues that need to be considered. You should take professional advice over this, as the costs of not doing things correctly could prove to be high.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.