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General, Taxation, Trusts

Proposed amendments to taxation provisions relating to trusts

The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill (Bill) includes proposed amendments arising from the administrative review of the taxation of trusts.

The proposed amendment relate to clarification as to what can comprise corpus and a range of amendments that clarify the nature of certain distributions and amendments that relate variously to complying,  non-complying and foreign trusts (for the purposes of the Income Tax Act 2007).

The Law Society has made a submission on the  Bill that recommends further consideration to some proposed amendments to ensure no wider ramifications.

Matters addressed in the Bill include:

  • Clause 88 of the Bill, which is intended to clarify that settlements that cannot be distributed cannot be included in the corpus of the trust
  • Clause 91(2) of the Bill, which proposes to amend section HC 15(6) of the Income Tax Act by deleting the words “disposing of property at less than market value”. Under the proposed amendment, section HC 16(5) of the Income Tax Act would not apply to the disposal of property at less than market value. As a result, those transactions would not be treated as a distribution of trustee income that is outside the scope of the ordering rules that applies to certain distributions from foreign and non-complying trusts
  • Clause 93(2) of the Bill, which proposes to amend section HC 26(1)(a) of the Income Tax Act. The Commentary to the Bill provides that that this amendment is intended to clarify the scope of the exemption for a trust that does not have a New Zealand resident settlor at any time during the income year
  • Clause 96 of the Bill, which proposes to introduce a formula to calculate the value of a settlement or distribution arising from a transfer of value on the provision of financial assistance, including a guarantee
  • Clause 97(2) of the Bill, which proposes an amendment to provide that a non-active trust must notify the Commissioner of Inland Revenue on an annual basis that the election to pay New Zealand tax on worldwide trustee income is to continue
  • Clause 97(8) of the Bill, which proposes to insert a new section HC 33(5) that will set out the treatment of distributions made by trusts that  have elected to pay New Zealand tax on the trust’s worldwide income. The Commentary to the Bill provides that this amendment “… also proposes that, when all income and
    capital gains from the trust during the period it was a non-complying trust have been fully distributed, only then would distributions be treated as being made from a complying trust”

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