Newsletter March 2014

Inside This Edition

1 GST & Non-residents
2 Multilateral Convention
3 Foreign Superannuation
4 Trusts & LTC’s
5 Staff News

GST AND NON-RESIDENTS

•  non-resident must not be carrying on a taxable activity in NZ
•  non-resident must be registered for consumption tax in their country of residence
•  amount of non-residents GST input in first period must exceed $ 500
• non-resident’s taxable activity does not involve services that are likely to be received in NZ by a person who is not registered for GST

The first GST return must be submitted in paper form and must be accompanied by invoices. IRD will have 90 days in which to review the information provided, release a refund or to obtain further information. Once the first GST return is approved by IRD, the non-resident should be able to register in myIR and will be able to file GST returns online going forward.

MULTILATERAL CONVENTION ON MUTUAL ADMINISTRATIVE ASSISTANCE

New Zealand has entered into a Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This Convention will become effective in New Zealand on 01 March. The Convention was developed jointly by the OECD and the Council of Europe.

The objective of NZ entering into this convention is to enhance its ability to deal with tax evasion and tax avoidance. The Convention will allow NZ’s IRD to request information from other tax authorities and seek assistance in collecting outstanding tax liabilities.

FOREIGN SUPERANNUATION

Foreign superannuation has been a very topical issue lately. It is therefore no surprise that we have been receiving many enquiries. These enquiries are often centered around whether clients should or should not transfer their foreign superannuation entitlements to NZ in order to take the advantage of the 15% temporary concessionary treatment.

The new superannuation rules will apply from 01 April 2014 and the current FIF rules have ceased to apply to superannuation. Taxpayers who have correctly applied FIF rules to their foreign superannuation in prior years and the relevant returns have been filed prior to 23 May 2013 will be able to continue to apply the FIF rules going forward. The benefit of this option is that any future receipts from foreign superannuation are effectively exempt although any growth in value of the fund or 5% of the opening market value is taxable.

Under the new rules interests in foreign superannuation will in essence be taxed on a receipts basis, using either the schedule method or formula method taking into account the length of time the taxpayer has been in New Zealand. Any pension receipts will continue to be taxed as usual. The new rules do not apply to pensions.

Those taxpayers who have not previously correctly applied the tax rules to lump sum receipts of their foreign superannuation or who withdraw a lump sum or transfer their superannuation entitlements to a NZ scheme before 01 April 2014, or make an application before 01 April 2014, can cap their taxable income to 15% of the amount withdrawn or transferred. The 15% is a deemed income which has to be included in the 2013/14 or the 2014/15 tax return. Under this concession no interest or penalties will be applied. Any transfer or lump sum withdrawals made after 01 April 2014will not qualify for this concessionary treatment (unless application for transfer is made prior to 01 April 2014) and will be taxed under the new rules.

Under the new rules there will be a 4 year exemption period, which provides certain taxpayers with an exemption from tax on withdrawals from foreign superannuation which mirrors the tax treatment of transitional residents. Under this concession lump sum withdrawals or transfers will be exempt if received or transferred within 48 months starting at the end of the month in which the person becomes NZ tax resident. The exemption applies to superannuation entitlements that the person acquired while non-resident and the taxpayer is entitled to a single exemption. The important point to note about this exemption is that it will not apply to transfers before 01 April 2014. In this case it may be more beneficial for taxpayers to defer their transfer to after 01 April 2014. Withdrawals or transfers outside of the 4 year exemption period will be taxable applying the new rules.

Under the new rules there will be a 4 year exemption period, which provides certain taxpayers with an exemption from tax on withdrawals from foreign superannuation which mirrors the tax treatment of transitional residents. Under this concession lump sum withdrawals or transfers will be exempt if received or transferred within 48 months starting at the end of the month in which the person becomes NZ tax resident. The exemption applies to superannuation entitlements that the person acquired while non-resident and the taxpayer is entitled to a single exemption. The important point to note about this exemption is that it will not apply to transfers before 01 April 2014. In this case it may be more beneficial for taxpayers to defer their transfer to after 01 April 2014. Withdrawals or transfers outside of the 4 year exemption period will be taxable applying the new rules.

We are often asked whether taxpayers should transfer their foreign superannuation to a NZ scheme in order to take advantage of the 15% concession or whether or not to continue applying the FIF rules to foreign superannuation. Whether or not the transfer or the application of FIF rules is beneficial will depend on every taxpayer’s set of particular circumstances. Taxpayers who work in NZ for a couple of years but never wish to retire in NZ are most probably better off not transferring their superannuation entitlements to NZ, provided they will not make withdrawals. As the new rules are receipt based the long term objective of the taxpayer should be considered.
Another thing which is often overlooked is the age at which persons become entitled to their superannuation benefits. The current retirement age in NZ is 65. There are countries where the retirement age is 60. Thus transferring the foreign superannuation to a NZ scheme may also defer the ability of a taxpayer to access the funds.

Trans-Tasman retirement saving schemes
The treatment of Australian superannuation schemes is not affected by the new rules. The Australian superannuation schemes continue to be treated differently. Australians moving to NZ have an option to either transfer their superannuation to a NZ Kiwisaver scheme or to retain their Australian superannuation.

Under the Trans-Tasman Savings Portability transfers can be made between Australian regulated complying superannuation funds and NZ Kiwisaver tax free.

Taxpayers wishing to retain their Australian superannuation will not have an attributed income under FIF rules, provided that the Australian super scheme is a complying scheme. Lump sum withdrawals from Australian superannuation upon reaching the retirement age (60 in Australia) will not be taxable in NZ as article 18 of the NZ/Australia double tax treaty allocates taxing rights to Australia. Periodic withdrawals from Australian superannuation after reaching the retirement age will also be exempt in NZ provided that the withdrawals are not subject to tax in Australia.

Should taxpayers have self managed superannuation schemes, it is recommended that Australian tax advice be obtained to ensure that the scheme retains its “Complying status” and thus the beneficial tax concessions.

TRUSTEE SHAREHOLDERS IN LTC’S – BEWARE!

Occasionally shares in LTC’s are held by trustees, although most LTC’s have resident individual shareholders who can make maximum use of losses. Of course it could well be that the LTC is making profits and was specifically elected into the regime to enable profits to drop into a trustee shareholders tax return where there are losses to carry forward. That aside, care needs to be taken when trusts hold shares in an LTC due to the counted owners test.

Unlike the old QC regime, a trust is always counted as an owner if it has failed to distribute all its LTC income in the past three years and the current year to beneficiaries. Where income has been distributed to a beneficiary, that beneficiary is also counted as an owner together with any other beneficiaries who have been in receipt of a distribution of the LTC income derived by the trustee in the current or previous three years.

Ordinarily if more than one beneficiary is in receipt of a distribution, those beneficiaries are within two degrees of relationship and are therefore counted as one person. But if you have an LTC with more than one trust shareholder and those two or more trusts are for unrelated groups of beneficiaries, you are likely to find that two trust shareholders result in four look through counted owners, leaving little breathing room, as if there are more than five look through counted owners at any time during the four year period (current and preceding 3 years) you have just fallen outside the LTC regime, with a consequent disposal of the underlying assets, at market value, possibly triggering depreciation recovery income, accrual income etc.

STAFF NEWS
We farewelled Mina Pavlovic, who has joined a graduate accounting program with BDO. In her place we have welcomed Nikita Batra who may have already been in contact with some of you. Nikita has a Bachelors of Business from Auckland University of Technology.
NAME CHANGE
As from 1st of April 2014 we are restructuring the existing practice and will operate under new name Roberts & Associates Ltd from that date.