IRD imposes increased trust compliance

Inland Revenue has imposed new disclosure obligations for trusts in New Zealand. The rules largely mirror the existing foreign trust disclosure rules but will apply to most trusts in New Zealand from the 2022 tax year.

While many trusts already produce financial statements, the new obligations require more detail and additional information. In many cases, the information does not even reflect the detail in the financial statements.

As a result, while we will work to mitigate any additional work required, many trustees will have an increase in their annual taxation compliance that they need to be ready for.

The additional filing obligations (over and above preparing financial statements and filing tax returns) include providing disclosures on:

• Details of settlors, appointor’s, and beneficiaries;
  
  
• Any transactions with settlors/beneficiaries during the year; and
  
  
• Details of the movements in the trust equity.

Non-active Complying Trusts (e.g. where the family home is the only asset and no taxable income is derived) are exempt from these three requirements provided they complete an IR633 declaration and meet the non-active criteria.

Certain Trusts, such as Foreign Trusts, Maori Authorities and charities must file a tax return but are exempt from the additional disclosures.

The additional disclosures required for Trusts include:

• A statement of profit or loss and a statement of financial position.
  
  
• The amount and nature of all settlements made to the trust in the income year (excluding minor services incidental to the activities of the trust provided at less than market value).
  
  
• The name, date of birth, jurisdiction of tax residence, and tax file number/taxpayer identification number of all settlors who have made a settlement on the trust in the income year, or settlors whose details have not previously been supplied to Inland Revenue.
  
  
• The amount and nature of all distributions made by trustees of the trust in the income year (excluding minor, non-monetary distributions that are incidental to the activities of the trust) and details of movements in beneficiary current accounts.
  
  
• The name, date of birth, jurisdiction of tax residence, and tax file number/taxpayer identification number, of all beneficiaries receiving such a distribution.
  
  
• The name, date of birth, jurisdiction of tax residence, and tax file number/taxpayer identification number, of each person having a power of appointment under the trust deed (including the power to appoint or dismiss a trustee, add or remove a beneficiary, or amend the trust deed).
  
  

In addition, from 31 March 2022 most trusts will also have to prepare financial statements. While these financial statements are not filed with the IR6, they must be available if the IRD requests them. There are two levels of reporting available with some concessions for simplified reporting trusts. For some trusts, this could be a new obligation.

There are also specific rules for certain trusts that operate forestry businesses or specified livestock business.

We will be in contact with Trustees regarding these obligations and will work through the requirements as part of the annual reporting process. If you have any questions, please get in touch with our Tax Advisory team.