TRUSTEES TAKE NOTE! NEW DOMESTIC TRUST REPORTING REQUIREMENTS

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TRUSTEES TAKE NOTE! NEW DOMESTIC TRUST REPORTING REQUIREMENTS

Posted by Thomas Barnaby on July 29 2022 in News

During April this year, the Government introduced two sets of reporting requirements for domestic trusts. The purpose of the changes is to improve the transparency of domestic trusts, and to assist Inland Revenue with their compliance of the new 39% personal income tax rate. As noted by the Revenue Minister David Park in April, the Government has “virtually no idea what rate of tax is paid by the very wealthy”. Simply put, the Government wants to know more about what sort of wealth is held by New Zealand domestic trusts and what trustees do with it.

What are the reporting requirements?

Each trust earning assessable income must now disclose information when completing annual income returns, including its earnings, financial position, and settlements. Each trust must also disclose the settlor(s), beneficiaries and distributions, and persons holding powers of appointment. Inland Revenue may request this information dating back to 2013/2014.

There are exemptions to the disclosure rules and to the requirement to file a return, including foreign trusts established by non-residents, charitable trusts, non-active trusts, and estates (as long as property is not being held on trust for the beneficiaries). Simplified reporting requirements are also available to those trusts which earn assessable income of less than $100,000 in an income year, deductible income of less than $100,000 in an income year and have total assets of less than $5 million.

As a basic guide, if your trust is active, you must file an IR6 return. If your trust is a non-active trust, you must file an IR633 declaration. We recommend that you take advice from your accountant/tax advisor on which return/declaration should be made to ensure that your trust is not caught by the new rules.

What impact will these changes have?

According to Inland Revenue, around 180,000 domestic trusts (with the exclusion of estates) report assessable annual income and may be impacted by these new disclosure requirements. The changes highlight the active role a trustee plays and the responsibilities which arise from that trustee role. Complying with the new rules will certainly increase the costs associated with maintaining the trust.

It is also well known that one of the main reasons for the creation of a trust is to ensure that its affairs remain private. While the Government has provided reassurances that safeguards will be put in place to protect the privacy of the reporting trusts, the requirement for the trust to disclose who is using its assets may concern those who had otherwise wished for that information to remain out of the hands of Inland Revenue.

What should trustees do?

These new rules may come as a bit of a surprise to many. Nonetheless, it is a timely reminder to ensure that your trust’s financial records are adequately maintained and reported to the Inland Revenue as soon as possible. If you have any doubts, we recommend that you review the new rules with your accountant/tax advisor.

We also recommend that the trustees review their trusts to ensure that its structure remains appropriate to meet the settlor’s objectives and the needs of its beneficiaries. Further to our previous article, periodic reviews should be undertaken to ensure that the trustees are fulfilling their obligations introduced under the Trusts Act 2019. Our team at Shieff Angland is happy to provide you with advice on that Act and how it may affect your trust. We can also assist you with the ongoing administration of your trust should you require.

A copy of the Inland Revenue’s Operational Statement for the reporting requirements for domestic trusts can be accessed here.

If you would like more information regarding the above or have any questions, please contact us.

This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.