Back in 2020 we mentioned that a major reform of the Trust Act was coming. Those changes are now in effect. That means, if you are a trustee, your upcoming End of Year financials for 2022 may require additional reporting in order to comply.
The new rules apply to all Trusts other than the exemptions listed below; there is no exemption for Trusts with less than $30,000 income as we indicated might be the case in an earlier blog.
The rationale for the new legislation is that it will enable the Government to determine the extent to which there may be an increased use of trusts following last year’s introduction of the 39% personal tax rate for income in excess of $180,000. Offshore jurisdictions have also increased pressure on the Government to share information on New Zealand trusts.
Annual reporting requirements
Changes have been made to the annual reporting requirements for domestic trusts to better understand and monitor the use of trusts and their financial position. The new disclosures will require trustees to commit more time on the administration of the trust leading to increased compliance costs for the preparation of the trust’s annual accounts and tax returns.
If your trust is active and if no exemptions apply, the trust must now provide the additional disclosures for each year it derives income starting from the 2021/2022 tax year. Inland Revenue will have retrospective powers to request the new disclosure information back to 2015 if they have any concerns.
Trustees will need to provide additional information about a trust’s earnings, financial position, settlements, settlors, distributions, beneficiaries, and powers of appointment.
Disclosures
While trusts already disclose information to Inland Revenue, such as beneficiary distributions, income/expenses and the Trust Deed, through the tax return process and when applying for the trust’s IRD number, the additional information now required is more detailed.
When you complete your 2021-2022 income tax return you will need to disclose:
- your earnings and financial position (assets, liabilities, and equity)
- the details of anyone who is a settlor of the trust
- the amount and nature of any settlement made during the year, and the details of the person who made the settlement
- the details of any beneficiary who has received a distribution during the year, the amount and nature of the distribution, and any movements in the beneficiary’s account.
Exemptions from additional disclosures
Some trusts are exempt from the additional disclosure requirements. The following trusts must file a tax return but are exempt from the additional disclosure requirements:
- foreign trusts
- charitable trusts
- trusts that are eligible to be Maori Authorities
- widely-held superannuation funds
- exempt employee share schemes
- debt funding special purpose vehicles
- trusts set up to hold electricity lines companies.
Non-active trusts
If your trust does not derive any income you should consider completing a non-active declaration to remove the requirement for the trust to file an income tax return. This may be the case for a family trust that holds the family home.
More information
If you are involved in a trust, there are other details that you should be aware of and we suggest you get in touch with us to discuss your situation or read more on the IRD website.
