New tax disclosure obligations for trustees

Trusts | Print Article

September 2021

Are you a trustee of a trust? Did you know additional information may need to be provided to the IRD with your next tax return?

Trustees should be aware of a new requirement to provide additional information with their tax returns for the 2021/22 tax year and beyond. This new requirement will give more information to the IRD about payments into and out of trusts. This information may also be passed on to overseas tax authorities (if there are overseas settlors, trustees, or beneficiaries) and to other government departments.

Does this apply to all trusts?

No. Trusts which do not earn income will generally qualify for non-active status. If a trust meets the requirements for non-active status, and has filed a non-active trust declaration with the IRD, it does not need to file tax returns (and therefore will not need to provide additional information to the IRD). However, non-active trusts still have an obligation under the Trusts Act 2019 to have financial statements (a statement of assets, liabilities, income, and expenditure). There are also exceptions for some other types of trusts, including incorporated charitable trusts and foreign trusts (which have their own reporting requirements).

The additional information that will need to be filed with a trust’s tax return includes:

  • A statement of profit or loss.
  • A statement of financial position.
  • The name, date of birth, country of tax residence and tax numbers for the following:
    • each appointor of the trust. An appointor is someone who holds the power to appoint and remove trustees or beneficiaries;
    • each settlor of the trust who makes a settlement (that is, a transfer of value into a trust) in that year, or whose details have not previously been provided to the IRD. This includes someone who makes a gift or an interest free loan to a trust, and a beneficiary who has a beneficiary current account balance over $25,000 at the end of the financial year who is paid no (or under market) interest; and
    • each beneficiary who benefits from a distribution (that is, a transfer of value out of a trust). This includes someone who receives a capital or income distribution, an interest-free loan, or the free (or under market) use of trust property.
  • The amount and nature of each settlement made on the trust.
  • The amount and nature of each distribution from the trust.

We recommend:·

  • Trustees should discuss the above matters with their accountant or tax adviser.
  • Trustees of non-active trusts should ensure they have filed a non-active trust declaration, and ensure the requirements to be a non-active trust are still being met.
  • If trustees of a trust do not have an IRD number for the trust, they should obtain one and file a non-active declaration (or file tax returns, if the trust has income).
  • Trustees should ensure financial statements for the trust have been prepared (the IRD reserves the right to request financial statements back to 2013).
  • Trustees should obtain the full names, dates of birth, tax residency information and tax numbers for:
    • all appointors;
    • all settlors; and
    • all beneficiaries who are allocated (or receive) a distribution. This information should be obtained before a distribution is made.
  • Details of beneficiaries who are not receiving distributions should also be held, for trust and disclosure purposes.
  • Trustees should ensure all transactions with settlors and beneficiaries are properly documented and will withstand IRD scrutiny.

If this article has raised any questions for you, please contact your lawyer.