New Zealand’s default position is simple: If you transfer a lump sum from a foreign pension or superannuation scheme into a NZ scheme, that lump sum is usually taxable under the foreign superannuation rules.
There are, however, a number of situations where a transfer can be made without New Zealand tax on the lump sum. Those situations are set out below.
1. You are not New Zealand tax resident at the time of transfer
New Zealand taxes residents on worldwide income and non-residents only on NZ-source income. A lump transferred from an overseas pension, while you are non-resident, is generally outside the New Zealand tax net, even if the money ultimately lands in a New Zealand scheme.
This could also occur where you are resident in both New Zealand and another country, but under a tie breaker test your primary tax residence is allocated to another country. This can be very complex and we recommend professional tax advice is sought.
2. You are a transitional tax resident within your 4-year exemption
New or returning migrants who qualify as transitional residents get a 4-year temporary exemption on most foreign-sourced investment income, including transfers from foreign superannuation schemes. If you:
- became NZ tax resident on or after 1 April 2006,
- were non-resident for the previous 10 years, and
- have not previously used transitional residency, and
- have not revoked your transitional residency either voluntarily or by taking working for families tax credits
then for roughly 4 years from the start of NZ residence, transfers from foreign super are exempt.
3. You use the separate 4-year foreign superannuation exemption (non-transitional)
Apart from transitional residency, there is a distinct 4-year exemption for foreign superannuation lump sums. You qualify if:
- you first acquired an interest in a foreign superannuation scheme while non-resident for New Zealand tax purposes, and
- you have never previously had this foreign-super 4-year exemption.
In that case:
- the exemption starts on the first day you become NZ tax resident, and
- runs for 48 months after the month you first meet NZ residence tests.
Any transfer from that foreign super during this exemption period is not taxed in New Zealand.
Key points:
- This exemption is separate from transitional residence – you can have this even if you don’t qualify as a transitional resident.
- It is a one-time, one-period exemption per person. It’s not “one bite per scheme” and not one per overseas stint: once your 4-year foreign-super exemption period has run, it doesn’t re-start.
4. Your foreign pension is grandparented under the old FIF regime
Before 1 April 2014, many foreign pensions were taxed annually under New Zealand’s Foreign Investment Fund (FIF)rules. The 2014 changes moved foreign superannuation to a largely “cash-basis” regime, but provided grandparenting for some taxpayers who had already been correctly returning FIF income. Broadly, if you:
- Acquired the foreign super while non-resident,
- Applied the FIF rules to that interest and included FIF income in a return filed before 20 May 2013, and
- Have continued to apply FIF to that interest consistently,
then transfers are not taxed under the foreign superannuation lump-sum rules.
Result: a later transfer of that grandparented pension to New Zealand can be effectively tax-free in NZ, because the income has already been taxed on an accrual basis.
5. You transfer an Australian superannuation scheme to New Zealand
Transfers from Australian superannuation to New Zealand have their own treatment under the Trans-Tasman Retirement Savings Portability regime.
Under Inland Revenue guidance, lump-sum transfers from Australian superannuation are not taxed in New Zealand, including where they are transferred to a KiwiSaver or NZ super scheme.
So, if your foreign pension is an Australian complying super fund and the transfer is made under the portability rules:
- the transfer itself is tax-free in NZ;
- future withdrawals from the receiving NZ scheme are then taxed under the normal NZ rules for that scheme.
If none of these apply
If you do not fall into any of the five categories above, and you are NZ tax resident when the transfer occurs, a lump-sum transfer of foreign pension to New Zealand will usually be taxed under the foreign superannuation lump-sum rules. Tax on foreign pension transfers is a complex subject and we recommend you seek the help of a professional adviser. Contact us today for assistance.
