While foreign trusts are getting some headlines, it is useful to bring attention to a small amendment to the complying trust election regime where a trust can elect to be a complying trust.
The Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 has amended ss HC 10 and HC 33 of the Income Tax Act 2007 correct an unintended legislative change made in relation to a complying trust and to clarify that a trust can be a complying trust where an election is made under s HC 33 and for the life of the trust the trustee’s income tax has been paid.
Section HC 10 sets out the requirements to be met in order to be a complying trust.
Section HC 33 provides that the person making the election must ensure that the trust pays tax on its worldwide trustee income at the trustee rate and that the trust is to be treated as if it had a settlor and a trustee resident in New Zealand.
Complying trust status can be important as a distribution (other than of income) from a trust to a beneficiary is exempt from income tax if the trust has been a complying trust at all times from the time the trust was either settled or a settlor migrates to New Zealand until the distribution was made.
These amendments are effective on 1 April 2008 and apply for the 2008/09 and later income years.
- Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016