Dunne: Foreign Super and Mining Tax Rules to Change

Proposals to reform the tax treatment of foreign superannuation and bring the tax treatment of gold, silver and ironsands mining into line with other economic activities are the centrepieces of a tax bill introduced in Parliament today, Revenue Minister Peter Dunne has announced.

He said the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill would make the rules for taxing foreign superannuation simpler and fairer for New Zealanders returning after working overseas and for migrants who have contributed to overseas superannuation schemes before coming to New Zealand.

“The current rules for taxing New Zealand residents on their foreign superannuation are complex and can be difficult to understand. 

“For example, a person with an interest in a foreign superannuation scheme might be taxed on accrual under the foreign investment fund rules, while someone else might be taxed upon receipt of a lump-sum payment. 
“As a result, some people pay more tax than others depending on how the foreign scheme is structured.  This bill provides a much simpler and more even-handed approach,” Mr Dunne said. 

Under the proposed changes, the foreign investment fund rules will no longer apply to foreign superannuation schemes.  Instead, lump sums from foreign superannuation schemes will be taxed when they are withdrawn or transferred to a New Zealand or Australian scheme. 

The amount of tax will depend on how long a taxpayer has been New Zealand resident, using one of two calculation options. 

Periodic pensions will not be taxed under either of these methods, but will be taxed in full on receipt, as most periodic pensions currently are.

Mr Dunne said the Government had also taken steps to ensure that transitional and practical matters arising from the proposed new rules were dealt with in the bill so taxpayers would not be disadvantaged. These include:

Making it easier to meet tax obligations, with those transferring their foreign superannuation scheme interests into KiwiSaver being allowed to make a withdrawal from the KiwiSaver scheme to pay their tax bill.

Those who complied with the foreign investment fund (FIF) income rules in relation to their foreign superannuation before the introduction of the bill today (20 May 2013) may choose to use the FIF rules in relation to that interest after 1 April 2014.

In addition, those who have made a lump-sum withdrawal or a transfer to another superannuation scheme between 1 January 2000 and 31 March 2014, but did not comply with their tax obligations at the time, will have an option to pay tax on only 15 percent of the lump sum amount.

The proposed changes to the tax treatment of foreign superannuation are to come into effect from 1 April 2014.

Mr Dunne said these and other measures in the bill were “a continuation of Government’s work in rationalising the tax system”.

He said changes to the mineral mining rules would more closely align the tax treatment of miners of specified minerals such as gold, silver and iron sands with that of taxpayers more generally by removing immediate tax deductions, or in some cases tax deductions in advance, for expenditure that other taxpayers are required to capitalise and depreciate over the useful life of the asset.

“Mining is an important sector, but we must ensure that tax rules do not advantage one sector over another,” Mr Dunne said.

The proposed changes to mineral mining will apply from the beginning of the 2014–15 income year.

Other measures in the bill include:

clarifying the minimum financial reporting requirements for certain companies

changes to the tax rules relating to bad debt deductions for holders of debt, to make them fairer

changes to the general and life insurance business tax rules to ensure they work as intended; and

further improving the integrity of the Working for Families tax credit provisions.

More information on the changes is available on Inland Revenue’s tax policy website, www.taxpolicy.ird.govt.nz

ENDS

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