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Taxation, Trusts

Appointor alert

Rules called the associated person rules apply to tax certain capital gains derived from land due to associations between builders, property developers and dealers.  These rules were strengthened with general effect from the start of the 2010/11 income year.

However, an unintended consequence of the amendments to the associated person rules is that the rules can now also apply to non-related parties due to the rules also applying to any person who has the power to appoint and remove trustees.

This means that both trusts and any person with a power of appointment (as the rules work both ways) needs to be aware of whether the rules might apply unfavourable to one party or the other.

Moves have been afoot for some time to have this inapropriate anomoly removed. The New Zealand Law Society has now proposed that there should be an exclusion for professional trustees.

However, whether this goes far enough, or whether any person with a power of appointment should be caught by the rules, should also be considered.  The need for powers of appointment cannot always be predicted or controlled, and the subtle manner in which many appointors are appointed suggests the need for a comprehensive review of the subject.

In the meantime, trustees and any person with a power of appointment needs to be vigilant to unanticipated associations for tax purposes.


  • Income Tax Act 2007, sub part YB
  • Vicki Ammundsen, Taxation of Trust, ed 2, para 18-170


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