In the income tax area, agreements between two countries are known as Double Taxation Agreements (DTAs). They are designed to prevent double taxation for cross border transactions, meaning: nobody who has income from other countries should be worse off than people who earn money and pay taxes in their country of residence. It provides taxpayers with an at least equal, sometimes even better treatment than they  would get under a country's domestic law.

 

Andrew Smith, an international tax expert from Victoria University in Wellington, describes DTAs as a "shield, not a sword". He says: "Double Tax Agreements cannot create a tax liability when there is no underlying provision in the domestic law of one of the states."

 

Depending on the individual agreement, overseas income or a portion of this income might be taxed in the country where the money is paid; in this case the already taxed income can be deducted from the tax debt in the country of residence. In other cases you can obtain exemptions from paying taxes overseas and have to declare the complete overseas income in your country of residence and pay full tax there. 

 

 

Another important factor is in which country you spend most time, meaning: you might have to pay taxes in New Zealand only if you reside there more than 183 days in the tax year. There are scores of variants that cannot be dealt with in detail in this article.

 

It is only meant to show that you have to study the Double Taxation Agreement New Zealand has with the specific country you earn money in. The rules can be complicated, so speak to Inland Revenue (IRD) and/or a tax consultant, specialising in international taxation.

 

Those DTAs also include regulations about the taxation of overseas pensions - and they could not be more different and more complicated.

 

The first problem already arises because of the nature of overseas pensions: Are these pensions universal state pensions? Are they state pensions for civil servants? Are they  contributory pensions? And finally, has the respective overseas state a Social Security Agreement (SSA) with New Zealand?

 

 

Whereas most overseas countries have Double Taxation Agreements with New Zealand and they generally work well, only eight states have Social Security Agreements with New Zealand (and we would not count Jersey and Guernsey as independent states) as a reaction to New Zealand's treatment of overseas pensions. SSAs are dreaded because they can make a retiree worse off than if he/she was treated under domestic law.

 

No DTA has much resemblance to any other, so study the section about pensions carefully. It can mean a lot of money.

 

At the Overseas Pensions Forum in Auckland, for example, we found out by coincidence that New Zealand's IRD has been taxing German pensions for years and years, although only certain state pensions for civil servants are taxable in New Zealand. The DTA between these countries clearly states that only the state that pays the pension can tax it, in this case: Germany.  

 

As an excuse for the IRD workers who breached this DTA we would accept that it is impossible to know each DTA by heart. But a serious question must be raised, as to why IRD's software is not designed to automatically exempt German pensions from taxation. 

 

 

As a reaction to this "news" - which is, of course, not a new regulation as the DTA dates back to 1980 - several pensioners with German pensions went to IRD and applied for a reassessment of their tax returns. We have heard of the first case where an applicant got overpaid taxes back. (But also of one case where the chartered accountant hired by an affected pensioner did not understand the DTA...)

 

There is no way to apply domestic law - which in New Zealand means that pensions (NZ Super) are taxed -, as international law, in this case the DTA, overrides national law.

 

Read the DTA New Zealand has signed with Canada, and you will find a lot more text written in far more complicated legalese. Fact is that New Zealand can tax Canadian pensions, and Canada can tax amounts higher than C$ 10,000 a year. Plus more detailed regulations...

 

We surely are willing to publish the chapters about the taxation of overseas pensions New Zealand has with other countries on this page. So if you have these paragraphs available, please send them to us - including a translation into plain English, so we can have a look and double-check them.

 

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(The complete link looks as follows - but only the above link works correctly: http://www.bundesfinanzministerium.de/nn_318/DE/BMF__Startseite/Service/

Downloads/Abt__IV/dba/085,templateId=raw,property=publicationFile.pdf) 

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Article 17
Pensions

1. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State shall, subject to the provisions of paragraph 2, be taxable only in that other State.

2. Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may also be taxed in the State in which they arise, and according to the laws of that State in any taxation year or income year where they exceed the sum of 10,000 Canadian dollars in that year; provided that the tax so charged shall not exceed

a) In the case of pensions, the lesser of

(i) 15 percent of the gross amount of the payment, and

(ii) the rate determined by reference to the amount of tax that the recipient of the payment would otherwise be required to pay for the year on the total amount of the payment received by him in the year, if he were a resident in the Contracting State in which the payment arises.

b) In the case of annuities other than payments of any kind under an income-averaging annuity contract, 15 percent of the amount of the payment or payments that are subject to tax in that State.

3. The competent authorities of the Contracting State may, if necessary, agree to modify the sum mentioned in paragraph 2 as a result of monetary or economic developments.

4. In this Article the term "annuities" means stated sums payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or moneys worth.