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Trust Disclosure Rules

Updated: May 17

Trust Disclosure Rules

From 1 April 2021, there was a new 39% tax bracket for individuals earning above $180,000. However, the tax rate for income from trusts remains at 33%. Given that there are between 300,000 and 500,000 trusts in New Zealand, there have been concerns that individuals will use trusts to avoid paying tax at the new top marginal tax rate.

To combat this problem, legislation introduced significant new disclosure rules for trusts, which also started from 1 April 2021.

Previously, trustees have filed income tax returns for all income earned as a trustee. The new disclosure obligations require these returns to be filed in addition to:

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

  • 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;

  • 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;

  • 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.

These new disclosure requirements do not apply to:

  • Foreign trusts;

  • Charitable trusts

  • Māori Authorities; and

  • Non-active trusts.

The new disclosure rules may not be the end of the changes to trusts. There will be close scrutiny on the way trusts are used, and if Inland Revenue identifies a systemic use of trusts to reduce exposure to the 39% tax bracket, then we think it will be likely that the trustee tax rate will increase to 39%. Consequently, clients and trustees should be advised against excessively structured arrangements that have the purpose of avoiding the 39% tax rate (read our earlier article on this here). Inland Revenue may see these arrangements as tax avoidance.

These new rules create significant new costs for trusts. Previously, there was no obligation to provide or prepare financial statements. Now all trusts are required to comply (unless they are one of the above exceptions). A lot of this information might be difficult to collect. Additionally, Inland Revenue may request this information for the previous eight years. Trustees should consider how they collect the necessary information and consider the reporting required as soon as possible.

The new disclosure requirements are significant, costly, and may take trustees by surprise. If your trust produces any income during the tax year starting 1 April 2021, then you need to comply with the new obligations. You need to think about collecting all of the information, and start keeping a record of all settlements and distributions. You can make sure you meet the new obligations by seeking specialist advice.

This article is intended for informational purposes only and should not replace specific tax advice. For personalised advice on all tax issues please contact us.

This article was accurate at the time of publishing.

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