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New Trust Disclosure Rules
The new Trusts Act 2019, which came into force on 30 January 2021, was one of the biggest changes for Trusts for quite some time. Now, Inland Revenue has also introduced further reporting and disclosure requirements.
These new rules enable Inland Revenue to collect additional information - whether your Trust transactions are taxable or not. Non-active Trusts, Charities, Māori Authorities and Foreign Trusts already subject to the foreign trust disclosure regime will not be subject to these new requirements.
Why is IRD collecting this information?
These increased reporting requirements were brought in under urgency to coincide with the increase in the top marginal tax rate of 39 cents for individuals with income over $180,000. The IRD is concerned that individuals may try to use trusts to divert personal income to avoid this tax, so will now be keeping a much closer eye on trust activities.
Increased disclosures in your IR6 annual income tax returns.
If your Trust generates assessable income, the disclosure obligations in your IR6 return will increase from 1 April 2021 for the 2022 year, and subsequent income years. This includes a requirement to prepare a statement of profit or loss and a statement of financial position (balance sheet). In some cases, where financial statements have not been prepared historically, there will be a requirement to now do so.
Inland Revenue will also require further information to be disclosed when applicable, this includes:
1. The amount and nature of settlements received; these do not need to be disclosed if they
are minor services incidental to the activities of the trust and are provided to the trustee at
less than market value.
2. Settlor details, including those of previous settlors if they haven’t been supplied previously to
3. The amount and nature of distributions made.
4. Details of beneficiaries who received capital and/or income distributions.
5. Details of people who have the power to appoint or dismiss a trustee, to add or remove a
beneficiary, or to amend the trust deed.
This is only a summary of the key information Inland Revenue will require under the new disclosure rules, and not a comprehensive list. Further information can be found on IRD’s website.
For some Trusts, it may be appropriate to file a non-active trust declaration, as the disclosures are not required. For example, if your Trust only owns the family home, a non-active trust declaration can be filed.
These changes are complex and we would recommend that trustees seek professional assistance to ensure that their trust complies with the new requirements.
Please do not hesitate to contact your BM advisor to discuss your situation.