One of these requirements gathers basic financial information and looks into who’s associated with trusts and the other requires more detailed financial reporting and disclosures for larger trusts.

They have been applied retrospectively, commencing from the 2021/2022 year. Trusts that derive assessable income must supply details of earnings, financial position, settlements, settlors, distributions, beneficiaries, and powers of appointment. Click here to see whether these disclosure rules apply to your trust.

Inland Revenue can also request this information dating back to 2013/2014 if it considers that necessary.

The Order in Council introducing the regulations was only signed on 7 March 2022, with the IRD’s Operational Statement on the Reporting Requirements for Domestic Trusts issued in April.

Baker Tilly Staples Rodway Christchurch tax director Spencer Smith says, “We’ve known it was coming and have been saying to clients throughout the year that they just need to be aware that whatever they do with their trust may end up needing to be disclosed to Inland Revenue.”

The rules have been brought in to help show the government whether the top personal tax rate of 39% is working effectively and to better understand and monitor the use of trusts and their financial positions. Inland Revenue also needs the information to comply with international tax treaty obligations and OECD standard requirements. 

Globally, trusts are perceived as being places for the wealthy to hide assets, so there is a mismatch between that exotic and privileged image, and New Zealand’s more prosaic “mum and dad” family trusts.

The following types of trusts are excluded from the new disclosure rules:

• Non-active
• Foreign trusts, established by non-residents
• Charitable
• Trusts eligible to be a Māori Authority
• Widely-held superannuation funds
• Exempt employee share schemes
• Debt funding special purpose vehicles
• Energy Lines Trusts
• An estate, as long as property isn’t being held on trust for beneficiaries

For all other trusts, the following information will need to be disclosed when completing annual income returns:

• A statement of profit or loss and a statement of financial position
• Settlors: Anyone who has transferred value to a trust, whether money or money’s worth, and irrespective of whether they are named on the trust deed
• Settlements: The amount and nature of any settlement made on the trust during the income year (excluding those that are minor and incidental to its operation)
• Distributions: The amount and nature of any distributions made (unless non-cash, minor and incidental to the trust’s operation)
• Beneficiaries: Beneficiaries who receive distributions (transfers of value, monetary or otherwise) from the trust during the year, and movements in beneficiary accounts
• Powers of appointment: Details of anyone who has the power to appoint or dismiss a trustee, add or remove a beneficiary, or to amend the trust deed

The information can be filled out electronically on the Inland Revenue website, or if you are filing a paper return, you’ll need to complete the following forms:

• IR6 (financial information)
• IR6S (details of settlors and settlements)
• IR6B (additional information for beneficiaries)
• IR6P (any person who has power of appointment for the trust)

In addition to this, trusts that do not meet the definition of a “simplified reporting trust” will need to prepare financial statements in accordance with Inland Revenue’s requirements under the Tax Administration (Financial Statements—Domestic Trusts) Order 2022.   

In terms of being excused from having to prepare financial statements, there are three thresholds: $100,000 of income or expenditure, or total assets of more than $5 million. If the trust exceeds any one of these thresholds, it will have to prepare detailed financial statements, says Mr Smith. “You have to be below all three requirements to be a simplified reporting trust.”

The Government argues that there is little visibility around New Zealand trusts at present, and at this point it’s not clear whether the new reporting requirements are more about improving that flow of information to Inland Revenue or to support hiking the current 33% tax rate for trusts up to 39% (in line with the highest personal tax rate).

Baker Tilly Staples Rodway Auckland tax associate director Daniel Merckle says when the 39% personal rate for those earning more than $180,000 annually was imposed in April last year, it was sold off the back of it applying to just 2% of New Zealanders, however a huge proportion of Kiwis have a trust.

Trustees will now need to figure out their reporting obligations and go back over their records to fill in any gaps. “It’s not the first round of legislative changes. We seem to have a habit now of rules being implemented early, but the details being provided well after the fact and taxpayers needing to adapt to that very late in the piece,” says Mr Merckle.

Mr Smith says there’s almost an assumption that if you have a trust, it’s because you want to avoid tax. He says it is possible that the government could use the findings to justify a trustee tax rate increase to 39%, but questions the fairness if every dollar earned by a trust were taxed at the highest tax rate.

“I accept the importance of having integrity in the tax system, but a 39% tax rate on trustees is pretty high. There will be many trusts that won’t earn anywhere near $180,000. The 39% tax rate is a marginal rate for our top income earners. Is it fair to go after trustees, charging them with 39% on every dollar earned?”    

Revenue Minister David Parker made his current position clear in a speech to Victoria University late last month – for now it’s all about the government’s poor data on distribution of wealth and capital income in New Zealand.

“We have virtually no idea what rate of tax is paid by the very wealthy,” he said. “It beggars belief that we currently don’t know what rate of tax is paid by the top cohort in New Zealand on their economic income.”