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Your trust and the updated Tax Administration Act 1994

New Zealand’s Tax Administration Act 1994 (the Act) was amended in December 2020. The changes to the Act include the introduction of new disclosure requirements for trusts to allow for the IRD to better monitor trust income.

Under the Act, trustees of trusts are required to file income tax returns for any income earned by the trust together with:

  1. a statement of profit or loss and a statement of financial position;
  2. the amount and nature of any settlement made on the trust within the financial year;
  3. the name, date of birth, jurisdiction of tax residence and IRD number of each settlor who makes a settlement on the trust within the financial year;
  4. a report on any distribution made by the trust in the financial year, including the amount of distribution, and the name, date of birth, jurisdiction of tax residence and IRD number of the beneficiary who receives the distribution;
  5. the name, date of birth, jurisdiction of tax residence and IRD number of each person who has the power to appoint or remove a trustee, add or remove a beneficiary or to amend the trust deed; and
  6. any other information required by the Commissioner of Inland Revenue (the Commissioner).

The new disclosure obligations apply to all trusts, unless they are a foreign trust, a charitable trust, a Maori authority trust or a non-active trust.

If your trust is already completing tax returns, you will need to discuss the above requirements with your accountant to ensure your trust is compliant.  With the new disclosures it will be particularly important for trustees to keep good records of all settlements and distributions.

If your trust does not complete tax returns, you could look into becoming a non-active trust.  A non-active trust is a trust that has made a declaration to the Commissioner that the trust is non-active, has not derived any income during the tax year, has had no deductions and has not used any trust assets in a way which gives rise to income.

Many trusts in New Zealand are non-active.  It is important to note that if your trust is not active and you do not want to comply with the new disclosure regime, you will need to complete the process required to confirm with the IRD that your trust is a non-active trust.  This will include obtaining an IRD number for your trust, if it does not already have one.

If you would like to further discuss the new disclosure requirements or would like assistance in declaring your trust non-active, please contact your usual Harkness Henry lawyer or one of our trust review team (Matthew Peploe and Katelyn Silvester).

 

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

Matthew Peploe - Harkness Henry Partner

Matthew Peploe

Katelyn Silvester - Harkness Henry Solicitor

Katelyn Silvester

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