The Taxation (Annual Rates for 2020/21, Feasibility Expenditure, and Remedial Matters) Bill, introduced to Parliament on 4 June 2020, includes amendments which would enable the direct transfer of New Zealanders’ unclaimed Australian superannuation money (USM) from the Australian Tax Office (ATO) to a KiwiSaver scheme.
A significant change to close a long unresolved issue
The proposed changes, to the Income Tax Act 2007 and the KiwiSaver Act 2006, would extend the definition of Australian complying superannuation scheme in each statute to include the Australian Commissioner of Tax (in its capacity under the Superannuation (Unclaimed Money and Lost Members) Act 1999 (Aust)) as the holder of USM.
To enter into force, the amendments will require corresponding changes to the Australian legislation and to the Trans-Tasman Retirement Savings Portability Arrangement between the New Zealand and Australian governments, which has been in effect since 1 July 2013 to remove an impediment to labour movements between the two countries (the TTP Arrangement).
The changes would enable USM to be transferred directly from the ATO to a KiwiSaver scheme in the same manner that retirement savings are currently able to be transferred from Australian superannuation schemes to KiwiSaver schemes.
This would close a significant gap in the TTP Arrangement that arises due to Australian law deeming a superannuation account to be “lost” after a period when it is inactive and the member is uncontactable. The Superannuation (Unclaimed Money and Lost Members) Act 1999 requires Australian superannuation schemes to transfer savings from such “lost” superannuation accounts to the ATO.
Currently, New Zealanders with USM held by the ATO who wish to repatriate those savings to New Zealand must first have them transferred to an Australian superannuation scheme. This additional step acts as a significant barrier to the repatriation of USM to New Zealand because many affected New Zealanders no longer have a superannuation account in Australia.
The required legislative amendments on both sides of the Tasman will come into force on the same date as the TTP Arrangement is amended. However, the earliest this is likely to occur is in late 2021.
Inland Revenue will provide more detailed guidance on operational matters closer to the commencement of the changes. The same rules would apply to transferred USM as those currently applying to other moneys transferred from Australian superannuation schemes to KiwiSaver schemes (the purpose of which is to ensure that no special advantage or disadvantage arises due to the differences between Australian and New Zealand superannuation settings). Those rules include that the transferred moneys:
- can be withdrawn from KiwiSaver when the member is 60 years or older and satisfies the Australian superannuation legislation’s definition of retirement
- cannot be withdrawn from KiwiSaver for the purchase of a first home in New Zealand
- cannot subsequently be transferred to a third country if the member permanently emigrates
- must be returned to an Australian superannuation scheme if a person’s membership in KiwiSaver is discovered to be invalid
- do not count towards a member’s entitlement to the annual $521.43 Government contribution in the year they are transferred to New Zealand, and
- would be treated as exempt income on entry into New Zealand (though any subsequent earnings on them are taxed under the portfolio investment entity rules).
Chapman Tripp comment
This proposal is a very welcome development, as it would remove the current “dog-leg” complication whereby a New Zealander with an ATO-held account balance who wishes to transfer it to KiwiSaver but is not already in a participating Australian scheme must first:
- join an Australian scheme which participates in the TTP Arrangement, and
- transfer the ATO-held balance to that scheme
before then being able to transfer that balance to their KiwiSaver scheme.
The non-portability of ATO-held superannuation money in Australia has been a significant issue since the inception of the TTP Arrangement and the aggregate amount of money held in “lost accounts” for New Zealanders has been estimated at intervals in the billions.
If you would like more information on the impact of these changes for your business, please get in touch with one of our contacts.
Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill
Inland Revenue Tax Policy page