Tax Updates: 31 March 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Tax Bill passes final reading

The Taxation (Annual Rates for 2024 −25, Emergency Response, and Remedial Measures) Bill has passed its third and final reading and is now just awaiting Royal Assent.

The Bill was introduced in August last year, with its main proposals including:

1. confirmation of the annual rates of income tax for the 2024–25 tax year;
   
2. introducing a generic set of tax relief measures for future emergency events;
   
3. implementing the OECD’s (Organisation for Economic Co-operation and Development) Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard;
   
4. addressing two issues that affect the transfer of overseas pension and superannuation funds to New Zealand (NZ);
5. allowing borrowers who have not registered a security for Approved Issuer Levy (AIL) on time to register it retrospectively in limited circumstances;
   
6. increasing the thresholds relating to exempt employee share schemes;
   
7. allowing persons aged under 16 to enrol in KiwiSaver with the signature of one guardian; and,
   
8. introducing a ‘one-off’ information-sharing provision with the Ministry of Business, Innovation and Employment to encourage using New Zealand Business Numbers (NZBNs) among unincorporated entities.

In my humble view, I would suggest that items four and five will be of interest to most.
The first proposal addressing issues that may arise on the transfer of overseas pension and superannuation funds to NZ, was to create a ‘scheme pays’ election option. This option would allow a person subject to NZ income tax on the transfer (under the foreign superannuation scheme withdrawal rules) to elect to have the NZ scheme pay the tax due on the transfer on the person’s behalf.

So, with respect to a transfer from a United Kingdom (UK) pension fund to an NZ QROPS (Qualifying Recognised Overseas Pension Scheme), the ‘scheme pays’ option would see the QROPS withhold the requisite taxes payable by the person and make payment directly to Inland Revenue (IR). This would not then expose the person to UK tax charges of up to 55% (payable where the person has access to their funds before 55 years of age), as no funds would be seen by the UK to have flowed to the migrant personally.

The second proposed change addresses KiwiSaver funds that are effectively ‘locked in,’ as they were transferred before the UK changed its mind regarding KiwiSaver schemes qualifying as QROPS effective from 6^th April 2015. Members with these ‘locked in’ contributions were worried that any transfer to another KiwiSaver scheme could trigger UK tax penalties for them. Consequently, the amendment will enable a KiwiSaver scheme to transfer these ‘locked in’ amounts to an NZ QROPS, so the remaining balance of the fund could be managed without any potential negative UK tax implications.

As I stated in my previous edition of AWIR, which covered the introduction of the Bill into Parliament, the likely most popular change brought about by passing the legislation will be the ability to apply for retrospective AIL (approved issuer levy) registration. When a taxpayer has overlooked their NRWT (Non-Resident Withholding Tax) payment obligations (usually in relation to overseas borrowings on foreign-held rental investment properties), prior to the law change, this unfortunate oversight would have triggered the need to file a voluntary disclosure to IR, to account for the 10/15% NRWT not previously returned on the offshore interest payments. Now, provided the delay in registering for AIL was caused by a ‘genuine oversight,’ or it can be shown that the borrower made reasonable efforts to register the security on time but failed to do so, then the Commissioner will have discretion to allow retrospective registration. Note that the ability to retrospectively elect for AIL registration (a 2% levy instead of the 10/15% NRWT) will not come into effect until April 1^st 2025, and going forward, that will be the earliest date you will be able to elect back to. However, at the Select Committee stage, the originally proposed two-year window for retrospective registration was removed (although ‘duration of the delay’ is now a factor the Commissioner must consider when determining whether the delay was caused by oversight).

There was one thing not included in the listed items earlier. While most of us have by now forgotten about the issue, somewhere deep down in that grey mass, you may recall the issue of GST refunds not being released in relation to permanent change of use adjustments. This was due to the drafting of the new rules (ability to make the one-off adjustment in the first adjustment period return post the permanent change of use occurring) having referenced that the first adjustment period must have commenced on or after 1^st April 2023, which therefore ruled out assets acquired before the 1^st April 2023 – as the adjustment period for these assets commenced on the date of purchase. The correction to the previous drafting is included in this Bill, which will now use the wording “apply to a registered person’s adjustments made in returns for taxable periods starting on or after 1^st April 2023,” with retrospective effect to 1^st April 2023.y April 17^th.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.