Important New Disclosure Rules for Trusts

Trust Deed

Important New Disclosure Rules for Trusts

The government announced that with the introduction of the top marginal tax rate of 39%, there would be increased focus on trusts. The trust tax rate is still at 33% and so there could be the incentive to funnel income through a trust if trustees or beneficiaries were paying 39% on their individual income.

Any trust that receives income during the year will be required to report more information to Inland Revenue (IR) for the 2022 income year. For most, that is the year ended 31 March, 2022. We’ve summarised some of the more important changes below.

From the 2022 tax year onwards more information will be required about a trust’s:

  • earnings;
  • settlements and settlors;
  • beneficiaries and distributions; and
  • persons with powers of appointment.

This includes financial summaries with a statement of profit or loss, as well as a statement of financial position. This is important as you may not previously completed financial statements.

These financial accounts will also need to provide:

  • The details of any person who has made a settlement on a Trust, as well as the amount and nature of any settlement made from 1 April 2021.
  • The details of any person who has received a distribution from a Trust, and the amount of the distribution.
  • The 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.

Simplified Reporting

Certain types of trusts will be qualify for simplified reporting if, in any given year, the trustee reports:

  • less than $100,000 assessable income
  • less than $100,000 deductible expenditure, and
  • total assets in the statement of financial position (including both private and income producing assets) valued at less than $5 million as at balance date.

Simplified reporting means that trustees do not need to report using accrual accounting or included items like accounting policies, comparative figures from one year to the next and a detailed schedule of the trust’s fixed assets.

Exemptions

There are exemptions to the rules where certain types of trusts are not required to comply. These types of trusts include:

  • Non-active trusts (where IR has been informed that the trust is non-active and the trustee has not derived any income, deductions or been involved with trust assets leading to the generation or income for any person or fringe benefits for any employee)
  • Foreign trusts
  • Charitable trusts
  • Those eligible to be a Māori authority
  • Widely-held superannuation funds
  • Employee share schemes
  • Debt funding special purpose vehicles
  • Energy lines trusts

You can read more information on the changes here.

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 us if you need more information or would like us to prepare your financial statements for the 2022 income year and beyond.

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Generate Accounting
Level 2, 22 Dundonald St, Eden Terrace, Auckland, New Zealand 1021.