When a settlor of a trust relocates from New Zealand to Australia, determining the trust’s tax residence becomes crucial. This process involves first reviewing the trust’s status under New Zealand and Australian domestic tax laws, followed by applying the Double Tax Agreement (DTA) between the two countries to resolve any potential dual residency issues.
Step 1: Review the trust’s tax status in New Zealand
Before the move, it’s important to assess the trust’s tax residence under New Zealand’s Income Tax Act 2007:
- Settlor’s residency: In New Zealand, a trust is generally considered a tax resident if the settlor is a New Zealand tax resident. Even after the settlor moves to Australia, if the settlor was a New Zealand resident when the trust was established, the trust might still be treated as a New Zealand resident for tax purposes.
- Trustee residency: If the trust’s trustees remain in New Zealand, this could reinforce the trust’s status as a New Zealand resident trust, even if the settlor is no longer a resident.
- Place of administration: If the trust’s central management and control were primarily exercised in New Zealand before the move, this is another factor that could maintain the trust’s residency in New Zealand.
Step 2: Assess the trust’s tax status in Australia
Upon moving to Australia, you need to consider how Australian tax laws might affect the trust:
- New settlor’s residency: Once you become an Australian tax resident, the Australian Tax Office (ATO) may consider the trust an Australian resident trust, especially if you continue to influence the trust’s administration from Australia.
- Trustee and administration factors: If you appoint Australian trustees or shift the trust’s administration to Australia, this could further establish the trust as an Australian resident for tax purposes.
Step 3: Apply the Double Tax Agreement (DTA)
If the trust is considered a resident in both New Zealand and Australia, the DTA between the two countries comes into play to avoid dual residency:
- Place of Effective Management (POEM): The DTA typically resolves dual residency by looking at the place of effective management. If, after your move, the trust’s central management shifts to Australia, the trust might be considered an Australian resident under the DTA. Conversely, if key decisions continue to be made in New Zealand, it may remain a New Zealand resident trust.
- Mutual Agreement Procedure (MAP): If there is ambiguity or dual management in both countries, the DTA allows for a Mutual Agreement Procedure (MAP). This procedure involves New Zealand and Australian tax authorities consulting to determine the trust’s tax residency, ensuring that it is only taxed as a resident in one country.
Step 4: Regularly review the trust’s residency status
As your personal circumstances and the trust’s administration evolve, it’s vital to regularly review the trust’s tax residency status. Any changes in your residency, the trustees’ residency, or the trust’s place of management can affect the trust’s tax obligations in both countries.
Conclusion
When moving from New Zealand to Australia, it’s essential to reassess your trust’s tax residency. Start by examining the trust under both New Zealand and Australian domestic tax laws, and then apply the DTA to clarify its residency status. This approach helps ensure that the trust’s tax obligations are clear, avoiding double taxation.
For personalised advice during this transition, consulting with our expert team is highly recommended.