My wife and I recently began considering packing up the (American) family, moving to NZ and living off of our investment income (all investments held in the US). The numbers were looking pretty good until I stumbled across the new tax rules for foreign investments. Unfortunately, it seems that our parade has been rained upon.
Other than our IRAs, 401ks and 403b plans (more on that later), US income tax has been paid on the bulk of our investments. We are now disheartened to learn that should we immigrate to NZ, we would essentially be required (after the four-year grace period) to pay additional tax on this accumulated wealth. I had figured that with carefully planned realization of capital gains, we could limit our US taxable income to less than half of our spending. With low capital gains tax in the US and no capital gains tax in New Zealand, it seemed that the tax burden would be quite managable. The prospect of paying high tax rates on 5% of our investment portfolio on an annual basis has changed everything. Instead of a tax bill (US and NZ combined) of less than 10% of annual spending, we're now looking at 30% or more, depending on how tax-deferred investments are treated by the NZ IRD. Am I missing something or does this new rule truly blow us out of the water?
I have scoured the internet and have found no information on how the NZ IRD treats US tax-deferred investments such as IRAs, 401ks, 403b and 529 plans under the new legislation. Does anyone have details?
Another concern is balancing US and NZ tax. With what are now very different definitions of "income", it seems that this is not so straight forward. The "fair dividend" upon which we would have to pay tax in NZ would not be considered income in the US (other than the part that may be made up of dividend payments). With a large NZ tax bill and a small US tax bill, it seems that it would be in our best interest to try to recognize as much US income as possible (since it would not increase our total tax liability and might save us some money down the road if the rules change again). The idea of trying to claim more income seems strange but the new NZ rules seem to encourage this kind of investment behavior. Any thoughts out there?
Our investments are currently held jointly between my wife and myself and we file jointly in the US. For NZ tax purposes, can the "fair dividend" associated with our investments be divided between us? (I understand that the concept of "married filing jointly" is foreign to the NZ tax code.)
Many thanks for your thoughts. I have learned a lot from this board and hope to learn more...