Taxation

Press, 1 June 1989, Page 16

Taxation

Sir,—lnserted in recent Inland Revenue advertisements is a caption, “It’s our job to be fair.” I think the recent Tax Amendment Act is anything but fair. From April 1, 1990, payments from New Zealand pension and lump-sum schemes are tax-free. Yet identical payments from overseas pension schemes paid to New Zealanders living here are conveniently not recognised as pensions so are taxed at the normal rates. This means that people who have spent part, or all, of their working lives overseas and receive these pensions will be penalised. It would appear that Mr Caygill is so desperate for funds he is quite prepared to extort revenue from minority groups who are too small to create much opposition. To be really fair, as the advertisements state, a pension is a pension, from whatever source. Would the Minister of Finance comment on what, to me, is a contradiction of facts? — Yours, etc. MIKE POTTER. May 16, 1989.

[The Minister of Finance, Mr Caygill, replies: “As a result of the passing of the Taxation Reform Bill (No. 5), a new regime for the taxation of registered superannuation schemes has been created. Under this regime, referred to as a "taxed/taxed/ exempt” regime: (1) Contributions to schemes are made out of taxed income (i.e., there is no special tax deduction for contributions); (2) earnings from fund investments are taxable; and (3) withdrawals or benefits from funds (both lump sums and pensions) will be tax-exempt. Thus, from April 1, 1990, payments from registered superannuation schemes will be tax-free. However, where a scheme’s investment income has not been subject to New Zealand tax, benefits paid by the scheme will remain taxable. Thus, benefits paid by most overseas schemes will continue to be taxed after April 1, 1990. Exempting such benefits would create a major tax-avoid-ance opportunity. This is because, in many countries, no tax is levied on the investment income of superannuation schemes. Accordingly, if benefits were exempt, New Zealanders would gain a significant tax advantage by using overseas schemes.”]