The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act was passed into law on 27 February 2014. The IRD has recently released a special report from the Policy & Strategy Division on the application of new rules to the taxation of foreign superannuation.
There are several points from this that have got wide application and readers should be aware of, being:
That where a New Zealand resident has received a lump sum payout from a foreign superannuation scheme and has not treated this as taxable or otherwise calculated tax on it in accordance with a foreign investment fund (FIF) Rules, they have an option of including 15% of the lump sum received in either their 2014 or 2015 income tax returns. This in effect a limited amnesty and is an opportunity that taxpayers who haven’t complied with their New Zealand tax obligations should take.
This also applies where amounts were transferred from foreign superannuation schemes back to New Zealand superannuation schemes, other than under the recent trans-Tasman portability of superannuation scheme provisions which allows the transfer of Australian pension fund interests by New Zealand tax residents into their New Zealand kiwi saver schemes.
From effect of the 2015 income tax year on (generally 1 April 2014 on), the FIF rules will cease to apply to interests held in foreign pension funds and only upon the payment of these pension funds or transfer of them to another scheme will a tax liability arise in New Zealand. Actual pensions will continue to be taxed also on a cash basis so in effect there is now a matching of pensions and lump sums so that both are taxed on a cash basis.
For taxpayers who have paid tax on such pension funds using the FIF rules, they can continue to do so. However, this is likely to be only beneficial when they are relatively close to retirement age and to accessing the lump sums. Obviously each person needs to take advice on their own individual situations.
One final interesting point out of the special report from the IRD is that they consider individual retirement accounts or IRA’s as they are known in the USA to be superannuation vehicles because they are mainly for the purposes of retirement saving. This is an unusual position to take as the generally held view in New Zealand has been that these accounts are more likely income deferment accounts than retirement saving accounts, as it has been possible to access the income prior to retirement without necessarily incurring significant penalties. However, at least now we have a position from the IRD and it is generally more beneficial than many taxpayers would have previously believed the case.
Taxation (Annual Rates, Employee Allowances and Remedial Matters) Bill. The financing select committee has reported back on this bill. From our previous newsletters you will understand that it relates to a variety of matters which will effect a lot of taxpayers in New Zealand.
The financing select committee have noted the following:
1 That the proposal to insert a definition of the date of acquisition of land for the purposes of part CB of the Income Tax Act 2007 should go head, but needs some further clarification. In effect, the date of acquisition will be the date that a person first acquires an equitable interest in land. While this is not always clear, it is something that can be worked out from the contracts.
2 The employee accommodation expenditure provisions are going to get a further makeover. The Select Committee has recommended that four exceptions are created to allow for situations involving shift work or remote work places. Where it is considered that it would be inappropriate to tax accommodation provided in connection with employment. These exceptions proposed would cover mobile work places such as ships, trucks or oil rigs, a station in Antarctic, lodging provided for shift workers such as fire fighters, ambulance staff and caregivers; and accommodation provided at remote locations where an employee is expected to fly in and our such as mines in Australia.
3 They also propose that the Commissioner is given the ability to extend this list of exceptions should others that are unforeseen currently become an issue by way of order in council.
4 The balance of the provisions relating to accommodation and meal payments are largely subject to minor tweaking. Meal payments will be clarified where they are work related costs with the full amount of meal payments and light refreshments being exempt if provided for work related events with payments linked to work related travel exempt for up to 3 months. It is also proposed that light refreshments including snack foods, tea, coffee and the like are exempt without time limit.
FATCA information sharing.
The Bill also proposes law changes to facilitate the sharing of account information with the United States under what is known as the FATCA (the Foreign Account Tax Compliance Act) which is due to come into effect on 1 July 2014. While this has been discussed before in our newsletter, it is interesting to note that there has been some significant compliance cost associated with this for financial institutions. Moreover, the definition of who is a financial institution is catching many other parties including potentially accounting and law firms who hold moneys in their trust accounts for people based in the United States or who are otherwise United States citizens or green card holders. This could easily capture people living in New Zealand who are still caught in the US tax net so care needs to be taken by anybody dealing with US citizens and their money.
If you would like to discuss the implications of the new law for your situation please email or call Nigel Smith.