Transfer to New Zealand schemes
Issue: Tax on transfers to locked-in New Zealand schemes
(Accountants and Tax Agents Institute of New Zealand, Baucher Consulting Limited, KPMG, New Zealand Institute of Chartered Accountants)
Transfers from foreign superannuation schemes to locked-in New Zealand superannuation schemes should be exempt from tax because the submitters do not consider such transfers to be income. They believe that no present entitlement to the funds arises at the point of transfer, so, the transfer should be treated as a capital transaction.
(Accountants and Tax Agents Institute of New Zealand, Baucher Consulting Limited).
Transfers to locked-in New Zealand superannuation schemes should not be taxed if they are locked in for 10 years (New Zealand Institute of Chartered Accountants) or if they are subject to anti-deferral measures, such as a minimum lock-in period (KPMG). These submitters argue that encouraging residents to repatriate their foreign superannuation schemes to New Zealand is beneficial not only for the New Zealand tax base, but also for New Zealand’s funds management industry. However, they acknowledge officials’ concerns regarding possible abuse and propose that an additional condition be attached to the transfer to mitigate this possible abuse – that the scheme must remain locked-in for a minimum period.
The intention behind the rules is to approximately tax the gains that the person made while they were resident in New Zealand. Exempting transfers into locked-in schemes would create a significant inequity between New Zealand residents with foreign superannuation schemes and those with other financial assets such as New Zealand superannuation schemes, shares, or bank deposits.
Officials also note that new residents will have four years to transfer their superannuation tax-free. Their tax liability gradually increases after that four-year period. This policy setting is expected to provide an incentive for taxpayers to transfer their superannuation to New Zealand sooner rather than later.
Officials consider that the submitters’ proposals would instead encourage residents to keep their foreign superannuation interests offshore and only transfer their interest into a locked-in New Zealand scheme immediately before they are able (and wish) to use the funds. They would pay no New Zealand tax while their interest was offshore, which could potentially be several decades.
That the submission be declined.
Issue: Receiving superannuation scheme should inform individual of tax implications
(Charter Square Services)
The New Zealand schemes accepting transfers from overseas should be required to inform the individual making the transfer of the tax implications.
[Raised in the oral submission]
Under the new rules, people who transfer their funds to superannuation schemes may or may not have a tax liability in respect of that scheme (which will generally depend on their duration of residence in New Zealand).
Officials agree that it is important for individuals to understand their tax obligations before they decide to make a withdrawal or transfer.
A difficulty with this submission is that the superannuation scheme cannot provide specific advice to individuals that is tailored to their situation as the superannuation scheme is not a tax agent.
Officials will be working with the industry to ensure that appropriate general information can be communicated to individuals. At this point in time, officials do not consider that a legislative requirement is necessary.
That the submission to require schemes to inform the individual of the tax implications be declined, but that the issue be noted by the Committee.