Resettlement occurs when all or some of the property of a trust is resettled onto a different trust. The taxation consequences of a resettlement are those that arise on the transfer of property, or following a loss of continuity. The assets of a trust can be resettled, in whole or in part, onto the trustees of another trust.

It is important to appreciate that resettlement is not a defined term. In some jurisdictions, resettlement is known as decanting.  See Decanting a California Trust.

In addition to a formal resettlement where all or some of the property subject to a trust is transferred to another trust pursuant to a deed of resettlement, a resettlement can occur where a trust is varied to such an extent that the original trust no longer exists.  See Variation of Trust.  A resettlement can occur pursuant to a power of resettlement contained in the deed of trust or pursuant to the statutory power of advancement: Trustee Act, s 41.

As a resettlement at is most elemental level is merely a disposition of trust assets, care must be taken to recognise the attendant tax consequences. For convenience, the term resettlement is used to cover both a formal resettlement and the consequences of a termination in an existing trust.

Before carrying out a resettlement it is important to appreciate what taxation consequences might arise.  These consequences will arise regardless of whether or not there is a change in the ultimate beneficiaries, or even if the trustees of both trusts are the same.

Distributions pursuant to a resettlement are treated as occurring at market value

When property is resettled onto another trust, no consideration is paid by the recipient trustee. However, for tax purposes, the property transferred is valued at market value. The same value is used by both the resettling and the recipient trustee: Income Tax Act 2007, s FC 2.

The effective date of the transfer is the date of the resettlement: s FC 2(1).

Depreciable property that is distributed pursuant to a resettlement has a tax book value for the recipient trustee

The resettling trustee must account for any depreciation recovery income in respect of depreciable property. This means that the resettling trustee must account for any depreciation recovery income, regardless of the fact that the transfer was not made for consideration: Income Tax Act 2007, s EE 44–EE 52

The recipient trustee is deemed to have acquired the property at market value: s FC 2(1).

Resettled land is transferred at market value

A resettlement of land that is subject to the land disposal provisions is treated as a disposal of the land at its market value: s FC 1(1)(f), FC 2. This may require the trustee to recognise income on the resettlement.

The recipient trustee is treated as having a cost of acquisition that is the same as the trustee’s disposal value. That will provide a cost base for the recipient trustee, in the event that the recipient trustee holds the land on revenue account.

Income from the sale of land distributed pursuant to a resettlement and later sold by the recipient trustee can give rise to income in the hands of the recipient trustee if the sale proceeds would have been taxable to the resettling trustee: s CB 15.

If the land disposal provisions in subpart CB apply, the recipient trustee will be treated as having acquired the land on the date on which the land was first acquired by the resettling trustee: s CB 15(2)).

Financial arrangements are resettled at market value

Where a financial arrangement is resettled, the transfer will be at market value for tax purposes: s FC 1(1)(f), FC 2. This is the case even though there will be no consideration for the resettlement.

Financial arrangements include outstanding debts and fixed interest securities. The financial arrangements rules tax the economic benefit associated with financial arrangements. When a financial arrangement is transferred, a wash-up calculation referred to as a base price adjustment occurs. The base price adjustment requires a calculation that compares the consideration received and paid in respect of the financial arrangement and provides that the difference is treated as income or expenditure.

Outstanding debts can be novated or repaid on a resettlement

If any debts are owing when a trust is resettled, the outstanding debts can be repaid or novated.

A novation effects an assignment so that the debt remains but the recipient trustee accepts the liability for the debt that was previously owed by the resettling trustees.

Debt forgiveness income can arise on a resettlement if the exception to s EW 50 does not apply

If the resettling trustee has had debts forgiven, income can arise to the resettling trustee, up to the amount of the debt forgiven, if the beneficiaries of the recipient trustee are neither persons other than those for whom the creditor has natural love and affection nor registered charities: s EW 50.

This would be the case if a resettlement was made from a trust where the only beneficiaries were the creditor’s children, onto a trust that had corporate beneficiaries. When this is the case, the previously forgiven amounts are income to the trustee of the resettling trust in the income year of the resettlement: s EW 50(6).


Morse advanced $200,000 to The Lewis Trust. The debt was progressively forgiven. The beneficiaries of the Lewis Trust are Lewis, his wife Bev, their children and the SPCA, a registered tax charity. The assets of the Lewis Trust have been resettled onto Hathaway’s Trust, a trust of which the sole beneficiary is the SPCA. No income is incurred by the trustee of the Lewis Trust in respect of the resettlement as the exception in s EW 50 will apply.

A resettlement may result in a loss of continuity

There are no modifications to the continuity provisions for companies that apply to resettlements. Accordingly, if 49% continuity is not maintained following a resettlement, any tax losses will be forfeited in companies other than look-through companies.

Further, if 66% continuity is not maintained in a company (other than a qualifying company), any imputation credits will be lost.

However, if the company whose shares are being resettled is in a position to declare an imputed dividend, some or all of the credits may be utilised prior to the resettlement.


The majority shareholder in a company is a trust, holding 900 of 1000 shares. The shares have been resettled on a new trust. The beneficiaries of the recipient trust are the same as the beneficiaries of the resettling trust. Does this constitute loss of continuity for imputation credits?

Yes, shareholder continuity of 66% or more for imputation credits will not be satisfied. The resettlement of the shares will affect the company’s ability to carry forward any pre-existing losses and will give rise to forfeiture of the imputation credits. However, the imputation credit problem may easily be overcome by way of a taxable bonus issue or a dividend prior to resettlement.

GST must be accounted for on any taxable supplies that are made pursuant to the resettlement

A supply pursuant to a resettlement may be a supply for GST purposes. Accordingly, if the resettling trust is GST-registered, GST must be accounted for on the supply of any assets that comprise the trust’s taxable activity.

Although a supply pursuant to a resettlement will not be made for consideration, if the recipient trust is associated with the resettling trustee, but not GST-registered, the supply will be deemed to be made at market value: Goods and Services Tax Act 1985, s 10(3).

Where both the resettling and recipient trusts are GST-registered, the market value provisions will not apply.

If the recipient trust is also GST-registered, it may be possible to zero-rate any taxable supplies of land or taxable supplies that are a going concern. The fact that there will be no consideration made for a supply pursuant to a resettlement does not affect the ability to zero-rate a supply, consideration not being a requirement for zero-rating: Goods and Services Tax Act , s 11(1)(m), 11(1)(mb), 78F).

If the recipient trustee is GST-registered and the resettling trustee is not, a secondhand goods credit is unlikely to be available, as the secondhand goods provision effectively requires that there be payment: Goods and Services Tax Act , s 3A(3).

Tax losses will be forfeited if the resettling trust is wound up

Losses cannot be resettled onto another trust. Where a resettling trust retains some assets, it will retain any losses. However, if the resettling trust resettles all its property onto the recipient trust, the resettling trust will cease to exist and, accordingly, the tax losses will be forfeited.


  • Taxation of Trusts, ed 3, V. Ammundsen (CCH NZ Limited), ch 33
  • A McKenzie, GST — A Practical Guide, Edition 8, CCH, 2008, ¶1308


2 thoughts on “Resettlement

  1. Where a charitable trust has ceased and all assets and liabilities have been transferred to a new charitable trust, is the resettlement amount a donation to the new trust or is it equity? I also assume that the accumulated surplus is not carried forward to the new trust. Is the treatment of the fixed assets done at book value or at the original cost with the accumulated depreciation being brought in to the new trust? Both trust have the same trustees.

    Posted by Jan Clark | December 14, 2017, 8:53 am
    • It is not clear what jurisdiction the trust is in. If the trust is a New Zealand resident trust there are specific taxation provisions that apply when a charitable trust deregisters as a tax charity see ss HR 11 and HR 12 of the Income Tax Act 2007. Legal advice is recommended.

      Posted by vickiammundsen | January 21, 2018, 11:40 am

Leave a Reply to vickiammundsen Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s



%d bloggers like this: