The Taxation (Annual Rates, Foreign Superannuation and Remedial Matters) Bill (112-1) was introduced into Parliament on 20th May 2013.
The Bill includes proposals to reform the taxation of foreign superannuation. It is specifically targeted at lump sums received. The new rules, if passed in current form, will come into effect on 01 April 2014. The aim of this reform is to make the rules simpler, less confusing and easier to comply with.
Currently, depending on the type of superannuation, it can be taxed under an accrual foreign investment fund (FIF) rules or on receipt. The different treatment can cause headaches for taxpayers.
The Bill proposes that the interests in foreign superannuation will no longer be taxable under the FIF rules, but at the time distributions are received. These new rules will affect people who are working as well as those who have already retired. The new rules will apply to distributions, cash withdrawals from the foreign superannuation scheme and the transfer of an interest in a foreign superannuation scheme to a superannuation scheme in Australia and in New Zealand
Those who have accounted for their interests in foreign superannuation under FIF rules will be able to do so going forward.
The Commissioner is aware that a number of taxpayers, that have made a withdrawal from foreign superannuation in cash or have transferred amounts from their foreign superannuation to NZ or Australian superannuation between 01 Jan 2000 and 31 March 2014, have not complied with their income tax obligations under current rules. These taxpayers will have an option to become compliant either by applying the current rules and paying the appropriate interest & penalties. Alternatively, they may return 15% of a previous withdrawal as assessable income in a future income tax return.
While these rules are still in a preliminary form, it is prudent to consider whether they would affect you. Should you have interest in a foreign superannuation which has not been disclosed to the IRD, or if you think that you may be affected by the proposed changes please contact us so that we can assess how the rules apply to you.