The per­ils of for­eign ex­po­sure

The Northland Age - - Local News - By Dale Adam­son, PKF Fran­cis Aickin

In our last ar­ti­cle (avail­able on I dis­cussed tax res­i­dency. How­ever, it is not just new tax res­i­dents who need to be aware of the com­plex in­ter­na­tional tax laws. All NZ tax res­i­dents (who are not oth­er­wise ex­empted) are sub­ject to tax on their world­wide in­come.

If you have any over­seas in­vest­ments (shares, bank ac­counts etc), over­seas pen­sion or su­per­an­nu­a­tion scheme, are a ben­e­fi­ciary of an over­seas trust or es­tate, own an over­seas prop­erty or have lent or bor­rowed funds to or from an over­seas per­son or en­tity, you need to no­tify your tax ad­viser.

NZ tax­pay­ers can no longer think that what the IRD doesn’t know they won’t find out about. NZ is one of more than 100 coun­tries that are party to the Global Au­to­matic Ex­change of In­for­ma­tion (AEOI).

NZ tax­a­tion of over­seas in­ter­ests is com­plex and cov­ered by mul­ti­ple rules. Shares in for­eign com­pa­nies, in­vest­ments in a for­eign unit trust and some for­eign life in­sur­ance poli­cies may be sub­ject to for­eign in­vest­ment fund rules.

The ma­jor­ity of Aus­tralian-listed shares are ex­empt from FIF rules. There is also an ex­emp­tion for in­di­vid­u­als whose to­tal cost of in­vest­ments in FIFs did not ex­ceed $50,000.

Your tax agent will se­lect the method to pro­vide max­i­mum tax ad­van­tage. Be aware that even though you in­vest through an in­vest­ment port­fo­lio such as Craigs, JB Were, Gareth Mor­gan, a bank port­fo­lio etc, the port­fo­lio may in­clude FIFs.

Prior to April 1, 2014, in­vest­ments in for­eign su­per­an­nu­a­tion funds were sub­ject to the FIF rules. If a tax­payer had been cor­rectly re­turn­ing their in­come un­der the FIF rules prior to this date they can con­tinue to do so. For the ma­jor­ity who weren’t, the rules now make pro­ceeds tax­able on re­ceipt or trans­fer.

An amnesty was of­fered for those who had with­drawn or trans­ferred funds be­tween Jan­uary 1, 2000 and March 31, 2014, to re­turn 15 per cent of to­tal trans­ferred or with­drawn in ei­ther their 2014 or 2015 tax re­turns. It is not too late to make a vol­un­tary dis­clo­sure and have your 2015 re­turn re­assessed. Penal­ties and in­ter­est will ap­ply, but it may be prefer­able to how the IRD would treat the in­come now.

Lump sum su­per­an­nu­a­tion with­drawals or trans­fers af­ter April 1, 2014, are sub­ject to the new rules. These ap­ply even if the funds are banked into a for­eign bank ac­count or in­vest­ment, trans­ferred to an Aus­tralian or NZ su­per scheme, or banked to a NZ bank ac­count. The ex­tent to which the funds are tax­able de­pends on the num­ber of years you have been an NZ tax res­i­dent.

Trans­fers in the first four years may be ex­empt. Af­ter that pe­riod there is a slid­ing scale as to what per­cent­age of the amount is tax­able. It varies from 4.76 per cent in Year 1 to 100 per cent af­ter 26 years.

Trans­fers from an Aus­tralian scheme to a NZ scheme may not be li­able for tax. Other for­eign fund to for­eign fund trans­fers are not tax­able un­til fi­nal draw­down.

In­vest­ments in over­seas bank ac­counts and prop­erty can also be prob­lem­atic due to the op­er­a­tion of the fi­nan­cial ar­range­ment rules and ex­change fluc­tu­a­tions.

Be open with your ac­coun­tant about your world­wide fi­nan­cial af­fairs and avoid nasty sur­prises from the IRD.

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