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General

I am not my trust

The separation between settlor and trust and the need to appreciate this is a common theme.  See for example My trust is my creature.

However, this does not mean that the existence of a trust can be disclaimed when convenient to do so.  This issue is canvassed in a reserved decision of Judge AA Sinclair as Tax Review Authority regarding an application for discovery by the Commissioner.

The background to the case relates to a taxpayer who failed to file income tax returns for 3 years. An assessment followed based on GST returns with deductions determined by reference to industry benchmarks. The taxpayer then filed a notice of proposed adjustment claiming total losses greater than the income assessed claiming that the taxpayer met her living expenses from loans from a family trust. However, the taxpayer was unwilling to agree to providing evidence of the advances. When the Commissioner sought discovery of the trust’s the taxpayer sought, unsuccessfully, to argue that these were not relevant to the matter. The Commissioner’s view, which was accepted was that the evidence if the loans was necessary both as a matter of credibility and to evidence how the losses were funded. Accordingly the taxpayer was required to discover amongst other things trustee minutes and resolutions, trust accounts, loan and mortgage statements.

As a practical observation the trustees were not party to the matter. Also it is unclear from the decision whether the taxpayer is a trustee and has the information in question under her control. As a beneficiary she can request the accounts . However, these right would not generally extend to the other documents in respect of which discovery has been ordered. While it might be presumed that non- party discovery will be addressed if necessary, the case highlights the fact that trusts cannot be treated as unassailable fortresses and that sometimes the vaults of the same will need to opened – whether willingly or otherwise. This highlights the need to ensure that trust records are maintained to a standard such that they withstand scrutiny. Finally, while the trustees may wish to assist the taxpayer beneficiary equally they may not welcome the discovery order and the scrutiny it might invite.

References

TRA 022/12 [2014] NZTRA 06

 

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