Know your Trust Act obligations
For March balance dates the rules apply from 1st April 2021. The applicable Trusts are any Trusts with taxable income and/or a requirement to file an income tax return. So any trusts that do not receive any taxable income should not be affected by these new rules eg. a family trust that holds a family home and no other income.
Exempt Trusts
Non-active Trusts
Charitable trusts
Trusts eligible to be Māori authority
Foreign trusts
Widely held superannuation funds
Exempt employee share schemes
Estates
Unit Trusts
Reportable information
Financial Information
There is a de-minimis threshold to reduce compliance burden for trusts to use accrual accounting For Trusts that derive income of less than $100k; Incur expenditure of less than $100k; hold total assets of less than $5m at all times during the income year.
The reportable information of all non-exempt Trusts includes:
Profit and Loss
Net profit or loss before tax
Any untaxed realized gains and receipts
Statement of Financial Position
Assets- including financial arrangements, land, buildings
Shares/ownership interests and total assets including the family homes
Liabilities – including financial arrangements and total liabilities
Equity – this is broken down into trust capital, drawings, current account year end balances and movements in beneficiary accounts.
On the IR website there is a handy flowchart that you can begin to complete for every trust you touch. It is expected that most Trusts will be affected by the additional reporting requirements.
Settlors & Settlements
Details of any settlements during the year include:
Cash, financial arrangements, land, buildings, shares/ownership interests, services, settlements that have been valued at zero and other with a description.
2022 income year requirement only – names and details of prior year settlements the guidance on this is not in much detail yet.
The Trust Settlor details are included in the new IR6S form. This is a new form for the 2022 Income Tax year which has to be included and attached to the top of page 3 of the IR 6 estate and trust income tax returns.
Beneficiaries & Distributions
Beneficiaries’ details required are:
Full name
Date of birth
Jurisdiction of tax residency
IRD number
No disclosure to beneficiaries be entitled to just what they have received.
Movements in beneficiaries accounts
Including opening balances, distributions, amounts withdrawn and enjoyed closing balance
For completeness a distribution is defined in the act as a transfer of value from the trust to a person who is a beneficiary of the trust. Capital distributions will need to be disclosed to the IR as part of the distribution of movement of the current account.
Expected implications
Time and cost for trustees to gather information.
Accounting fees to disclose information – we won’t necessarily have this information on file.
Overseas information sharing
Government department access
Other
Often foreign transactions have not been showed in previous tax returns. There is increased interest in this worldwide. Cross border information sharing is happening every day.
Capital transactions with beneficiaries who are receiving income tested benefits is that additional income includes non taxable distributions as well as non taxable distributions.
So information sharing between inland revenue and social welfare is likely to be shared very freely.
Have questions?
Please contact us if you would like help to chat about how the change in law may affect you, or to book in your Trust Review Meeting with one of the team.