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Reporting requirements for trusts

From 31 March 2022 there are new IRD reporting obligations for New Zealand Trusts.

The purpose of trust information gathering powers is for IR to collect further information from trustees to:

  • gain insight into whether the top personal tax rate of 39% is working effectively;

  • to provide better information to understand and monitor the use of structures and entities by trustees; and

  • the Commissioner may use the information collected for compliance and audit purposes.

Understanding the different types of trusts

New Zealand tax legislation defines three types of trusts:

  • Complying Trust

    • Complying trusts have a NZ resident settlor and NZ resident trustees

  • Foreign Trust

    • Foreign trusts have a non-resident settlor at the time a distribution is made. The distribution from this trust is not taxable if it is:

      • Of realised capital gains

      • The payment out of the corpus of the trust.

  • Non-Complying Trust

    • When a trust was a foreign trust, but the settlor has become a NZ tax resident.

    • An election to move to a complying trust can be made within 12 months.

    • Non-complying trust distributions are subject to NZ tax at a rate of 45%.

Additionally, the legislation defines Non-Active Trusts. A trust is considered non-active when a trust, for an entire tax year, has:

  • not derived or been deemed to have derived any gross income from any source

  • no deductions

  • not been party to, or continued with, any transactions with assets of the trust that give rise to income or deemed income in any person's hand or fringe benefits to any employee or former employee.

NZ Trust Disclosure Rules - Who needs to comply?

You don’t need to comply if the trust is:

  • a non-active trust or a trust that has not derived any assessable income

  • a foreign trust

  • a registered charity

  • eligible to be a Māori Authority

  • a widely-held superannuation fund

  • an exempt employee share scheme

  • a debt funding special purpose vehicle

  • an energy lines trust.

What are the required disclosures?

All trustees of a trust, except those identified above, which derive assessable income for a tax year must file an income tax return, and additionally must prepare financial statements.

While financial statements are not required to be provided to IR, they must be available if requested.

Additionally, the new disclosure obligations require the following disclosures:

  • Financial Information

    • A statement of financial position and a statement of profit or loss for the trust;

  • Settlors and Settlements

    • The amount and nature of each settlement made on the trust in the income year;

    • The details (name, date of birth, jurisdiction of tax residence, tax file number, and taxpayer identification number) of each settlor who makes a settlement;

  • Beneficiaries & Distributions

    • The amount of every distribution made by the trust, and the details (name date of birth, jurisdiction of tax residence, tax file number and taxpayer identification number) of the beneficiary who receives the distribution;

    • Trust equity balance

    • Associated persons financial arrangements including the total amount of all (interest and non-interest bearing) loans to persons associated with the trust

    • Beneficiary current account closing balance

    • Withdrawals and amounts enjoyed during the year, recording the total of:

      • the value of assets used for less than market value

      • assets withdrawn

      • debt forgiven and

      • any cash withdrawals made by the beneficiary during the year

  • Power of Appointment

    • The details (name, date of birth, jurisdiction of tax residence, tax file number, and taxpayer identification number) of every person with the power to appoint or remove trustees or add or remove beneficiaries; and

  • Any other information required by the Commissioner.

What this means for you

In addition to us requesting the usual annual information, we will want to verify the above information with you.

This may increase the amount of work we need to undertake in preparing the disclosure information for IR. We will discuss any expected additional cost once we have had a chance to review the information we already hold on your behalf.

This article is for informational purposes only and should not replace specific tax advice. For personalised advice please contact Justine Kennard, Business Studio.

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