New rules for Trust Compliance

New rules for Trust Compliance

With a new top tax rate of 39% now in place, other tax rules have also been tweaked to make sure they all align.

Trusts now have new rules on disclosures, in an effort to prevent people from using trusts to avoid paying additional tax.

Previously, trusts have not needed to file financial statements or details of non-taxable transactions. This has now changed. Inland Revenue will now be collecting more information so it can keep a closer eye on how trusts are being used.

Trusts now need to provide more financial information

From April 2021 onwards, all annual returns for trusts will need to include:

  • Financial statements
  • Details of settlements
  • Details of distributions, taxable or not
  • Any other information required, like loans and transfers involving associated persons or related parties.

Charitable and non-active trusts are exempt, since they don’t need to file a return.

You can read more about the new taxation bill here.

If this looks daunting, don’t worry, we can help you work out what information is required and how you can supply it. It is vital to make sure you comply with the rules so your trust isn’t declared a sham – if that happened you would lose any advantages that the trust provides.

Compliance costs are increasing

This is a large step up in terms of what trusts must provide in order to be compliant. It’s important that you start collating this information so you can supply it to Inland Revenue. This will probably be time-consuming and may have additional costs, particularly in this first year. Hopefully it will get easier as we all learn to navigate the new rules.

If you have doubts about how to comply, we can answer your questions. It might also be a good time to review your entities and make sure your trust is working for you.

Give us a call, drop us a note or text us – we’re here to help!

How will the Trusts Act 2019 impact you and your Trust?

How will the Trusts Act 2019 impact you and your Trust?

Trusts are a common thing in New Zealand and the reasons for setting them up vary due to each person’s unique situation. For those of who you are not aware, The Trusts Act 2019 comes into effect on 30 January 2021. Changes to the act aim to make trusts more accessible. There are increased compliance obligations on trustees and duties that ensure greater transparency for beneficiaries.

The changes to the act include:

  • The age of majority (the default age that a person can inherit if not specified) changes from 20 to 18.
  • The maximum duration period of a trust is extended from 80 years to 125 years
  • Obligations on trustees to keep certain information about trusts
  • A mechanism to request the court to review the decisions and actions of trustees
  • Flexible powers for trustees to manage trusts.

Trustee duties

Trustees must be aware of their obligations and duties under the law. These are set out in the Trusts Act 2019. There are mandatory duties that are essentially to ensure trustees take their role seriously. These are:

  • A trustee must know the terms of the trust
  • A trustee must follow the terms of the trust
  • A trustee must act honestly, and in good faith
  • A trustee must act for the beneficiaries of the trust
  • A trustee must exercise the powers they have for a proper purpose.

Optional duties for trustees – The act sets out optional duties that can be changed in the trust deed. If this happens, the advisor must point this out to the settlors.

Duties regarding information keeping and sharing – These duties are regarding the information trustees must keep, and the information that must be made available to beneficiaries (including of trust assets, trustee decisions, and changes to the trust).

The additional compliance duties for trustees within the act may mean that existing trusts are no longer cost effective. Greater transparency may also require trustees to disclose information that they previously did not share.

Get in touch to discuss how the changes impact you.