The New Zealand Inland Revenue Department (IRD) has proposed significant changes to the taxation of overseas pension transfers, set to take effect from 1 April 2026. The reforms aim to simplify tax obligations for individuals transferring pension funds to New Zealand and alleviate any financial hardships in paying tax on transfers.
Introduction of the “Scheme Pays” Mechanism
Currently, individuals transferring overseas pension funds to New Zealand may have taxable income arising from the transfer. The income is taxed at the individual’s marginal tax rate and is payable directly by the individual. However, under the proposed “scheme pays” mechanism, individuals can elect to have the New Zealand pension provider deduct and remit the tax on their behalf. The taxable income would attract a flat rate of 28% and be paid directly to Inland Revenue, streamlining the process and reducing the administrative burden on individuals.
Implementation Timeline
The proposed changes are scheduled to come into effect on 1 April 2026. This timeline allows sufficient time for both Inland Revenue and pension scheme providers to implement the necessary systems and processes to accommodate the new mechanism.
Considerations for People With Pensions
If you are planning to transfer overseas pension funds to New Zealand you should:
- Seek professional advice to understand the implications of the “scheme pays” option and to determine the most tax-efficient strategy for their specific circumstances.
- Compare the time frames for transferring now and how much taxable income you will need to declare versus waiting until 1 April 2026
These proposed reforms represent a significant shift in the taxation of overseas pension transfers, aiming to simplify the process and reduce potential financial burdens on individuals. Staying informed and seeking professional advice will be crucial for those affected by these changes.
