New trust reporting and disclosure requirements

New trust reporting and disclosure requirements


Father And Child

In 2021, the Taxation (Income Tax Rate and Other Amendments) Act was passed by parliament. One of the changes made in the Act was a new top tax rate for individuals of 39%. Because the trust tax rate is 33%, people will be keen to look at ways they can use their trust to stream income and pay less tax. To combat this, the Act also introduces a significant increase to the reporting requirements for trusts from 1 April 2021. The additional information will help Inland Revenue to understand how trusts accumulate and distribute income.

Financial summary requirements

Moving forward, trusts will be required to provide to the IRD a financial summary with their annual tax return, including a balance sheet, profit and loss, details of beneficiary current accounts and transactions with associated persons. 

For most trusts, the financial summary should:

  • Use double-entry accounting
  • Be on an accrual basis
  • Include a statement of accounting policies
  • Include a reconciliation between the Profit and Loss and the movements of all beneficiary current accounts
  • Display a schedule of transactions involving associated persons

Some small trusts may be exempt from the requirements above but will still be required to provide a financial summary.

While many trusts will have been preparing this information already, some will not have been. Often it will be easier to comply with these new requirements by setting up some accounting software, for example Xero.

Detailed reporting requirements

The Act requires that trusts will also need to declare a range of information including:

  • Details of any person who is able to appoint or dismiss a trustee, add or remove a beneficiary or change the Trust Deed
  • Details of any settlements during the year including the names, IRD number, date of birth and tax jurisdiction of the beneficiaries involved in the transaction
  • Details of any historic settlements that have not already been declared to the IRD including the names, IRD number, date of birth and tax jurisdiction of the beneficiaries involved in the transaction
  • Any other information requested by the IRD going back to 2015

Importantly, the definition of a settlor is not limited to the person named as the settlor on the trust deed. A settlor is someone who transfers value to a trust. A transfer of value can be many things including providing financial assistance to the trust, providing services to the trust at no charge and also not charging interest to the trust on a balance owed to them by the trust. This last point will capture many people as it is very common for trusts to owe their beneficiaries a sum that has not been withdrawn. These trusts will need to declare the details of these settlors and the value settled.

Exemptions from reporting

There are some exemptions from the new reporting requirements including:

  • Non-active trusts
  • Foreign trusts
  • Charitable trusts and others

A non-active trust should file a non-active declaration with the IRD to remove their obligation to file a return.

Disclosure example

Below are some examples of the disclosures required from 1 April 2021:

The Willis Trust distributes $10,000 to Helen in the 2022 financial statements.

The trust will need to file the following details in its tax return for 2022:

  • Name, DOB, IRD number and tax jurisdiction for Helen
  • Nature of transaction (distribution) and the amount

Helen files the $10,000 as income in her income tax return.

The funds are not taken by Helen, instead the distribution is recorded against her beneficiary current account (i.e. the Trust owes her that money). Helen is not charging interest on the amount owed to her – this makes her “settlor”.

In this case, the trust will need to provide the information above as well as a description of the settlement and amount settled.

Help with your trust

As you can see, the trust reporting and disclosure requirements are getting increasingly arduous. Get in touch with us if you’d like to discuss the requirements for your trust and how we can help you navigate the increasingly complex trust requirements.

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