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News • 2022-09-08

Time to rethink Trusts, by Dale Adamson

The new tax return disclosures apply to 2022 tax year onwards and apply to any Trust that makes income in a year. They do not apply to non-active trusts or charitable trusts, or estates (unless assets are being held on trust.)  

The disclosures are wide ranging and tax agents will require a lot more information to file the trust’s tax return including:

  • Copy of original Trust Deed and any amendments, including addition/removal of trustees or beneficiaries
  • Full details of persons with power to appoint/remove trustees or beneficiaries at any time..
  • Details of any settlors of the Trust since inception. (A settlor is anyone who has provided any assets or services to the Trust for value less than market value not just persons named in Trust Deed.).
  • Full details of any settlement during the tax year.
  • Full details of all beneficiaries and movements in their current accounts during the year.
  • Full details of distributions (transfer of value from the trust to the beneficiary) during year.

Full details for settlors, beneficiaries or persons with power to appoint means full name, date of birth, country of tax residence and tax identification number (or NZ IRD number).

The above trust disclosures apply to active trusts regardless of size.

In addition, the following financial information is required to be included in the tax return:

  • the net profit/loss before tax, any tax adjustments and any untaxed realised gains and receipts.
  • total assets separating financial arrangements, land & buildings, and shares/ownership interests
  • total liabilities showing financial arrangements separately.
  • Trust capital and undistributed profits/losses, and beneficiary current account balances and total beneficiary drawings during year

These financial reporting requirements mean that full  double-entry financial statements need to be prepared . Trusts with gross assessable income of less than $100,000 and deductible expenditure of less than $100,000 and total assets of less than $5 million have simplified requirements. They do not have to include debtors, creditors or other accruals, prior year comparatives, full accounting policies and notes. However, basis of valuation of assets and still required.

Non active trusts with income of $200 or less in interest, will not have to prepare financial statements at all.

If the purpose of the Trust is to hold the family home, it may be wise to consider whether the trust should be restructured to enable it to register as a non-active trust (IR633).

Annual compliance costs and tax return preparation fees for trusts will increase to cover costs of these reporting/disclosure changes.

Also, be aware that the information disclosed may be shared with overseas tax authorities as well as the Ministry of Social Development.

Contact your advisor to review whether your trust still meets your requirements in these changing times.

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