Significant disclosure and reporting requirement changes for New Zealand Domestic Trusts
Changes followed by the introduction of Trust Act 2019 The Inland Revenue Department has announced that the new reporting and disclosure requirements will apply to NZ domestic trusts from the 2021-22 financial year. The new requirements include standards for meeting the minimum requirement when preparing financial statements and the finer details on information mostly around distributions, settlements and vesting etc. This information now needs to be disclosed when filing the annual income tax return for trusts going forward.
Given we are fast approaching the end of the 2021-22 financial year, it is now vital for trustees of NZ domestic trusts to consider those new standards and understand their implications.
The true intention It is highly likely that the Inland Revenue would like to support its ability to assess compliance with the new 39% top personal tax rate and monitor how the use of various entity structures is managed by trustees. Consequently, it is highly recommended that you consult with us especially if you run a multiple entities with trust involved.
The new minimum requirements for financial reporting From the 2021-22 financial year going forward, NZ domestic trusts must prepare financial statements with prescribed information and submit it to the Inland Revenue along with trust income tax returns. If the trust does not derive annual income in excess of $30,000, or does not incur annual expenditure in excess of $30,000, and the total value of assets does not exceed $2 million, there will be less reporting requirements imposed, however a minimum requirement financial statements must be prepared and submitted unless trust is inactive.
It is not only financial information that is disclosed The government has released a policy document specifying amendments to the Tax Administration Act to give the Inland Revenue the power to request a certain non-financial information about NZ domestic trusts such as details of settlors and settlements made, details of beneficiaries and nature of distributions, details of persons who have the power to appoint/dismiss trustee etc. This will mean that it is not only the financial information that will be disclosed, but all non-financial information will be also need to be readily available for IRD to assess if they choose to do so.
Inland Revenue can go back to the 2015 financial year The new rule explicitly gives the Inland Revenue the power to gather information retrospectively as far back as the 2014-2015 financial year. The existing rule requires all tax payers to keep any records for at least seven years after the end of the financial year; therefore, all trust documents must be readily available for IRD to inspect if requested.
We are here to help There are mainly three options for NZ domestic trusts to comply with the new rule:
All trusts must undergo on of the options listed above before the end of the 2021-22 financial year (31 March 2022) returns are filed. We are here to help you achieve the most optimal outcome.
Please contact your accountant we will walk you through the changes, new rules and work out the best solution for your trust.
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