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.
An unintended consequence of the amendments to the associated person rules was that the rules could also apply to professional advisers who cannot benefit from the trust. This was due to the rules also applying to any person who has the power to appoint and remove trustees (a trustee is associated for tax purposes with a person who has the powert to appoint and remove trustees). See appointor alert for further background.
These rules were further amended, with retrospective effect by the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 so that this will not be the case where the appointor is:
- a provider of professional services,
- a member of an “approved organisation” as defined by the Tax Administration Act (that is a member of the New Zealand Institute of Chartered Accountants, New Zealand Law Society and the Society of Trust and Estate Practitioners),
- has not, and
- cannot benefit from the trust.
This means that there will be no association with a professional (under the appointor- trustee test in s YB 11) who has the power of appointment, provided that all of the requirements of the exclusion are met. This does not mean that there cannot be associations under other provisions of sub-part YB if the professional has other connections with the trust.
That said, there is still significant scope for unintended tax consequences where the appointor is an unrelated party that does not come within the exclusion to the definition. For this reason care is requried when nominating an appointor. While diversification of these powers is often recommended – careful consideration is also required.
- Income Tax Act 2007, s YB 11
- Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, s 99
- Tax Administration Act, s 3(1) “approved organisation”
- Tax Information Bulletin, Vol 25, No 9, October 2013 at p.40