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Disclosure Obligations

Some settlors and trustees are required to disclose certain trust information to the Inland Revenue. 

Settlors that have to make disclosure

With some limited exceptions a settlor must disclose the existence of a trust and details of its trustees and beneficiaries if there is no resident trustee.  

Disclosure is also required if a person who is a New Zealand resident makes a settlement on a trust as nominee for another person and there is no resident trustee at settlement.

Disclosure is made on form IR 462, “Settlors of trusts disclosure”.  

Where disclosure is required the following information must be provided:

  • a copy of the deed of trust
  • details of the trust settlement, including the date of the original settlement and dates of any subsequent settlements
  • the market value of trust property
  • any consideration received by the settlor for property settled onto the trust
  • names and addresses of the trustees and beneficiaries
  • the names and addresses of the persons for whom any nominee is acting, and
  • any other information that the Commissioner may require.

If disclosure is not made, in addition to any penalties for failure to comply, the Commissioner can determine the amount of trustee income for an income year.  This means that a trustee that would not otherwise be liable for tax in New Zealand can incur a tax liability.

Resident trustees of foreign trusts also have disclosure obligations

Disclosure must be made by a resident foreign trustee. A resident foreign trustee is a New Zealand tax resident who acts as a trustee of a foreign trust that is not a registered charitable trust.

The resident trustee of a foreign trust must disclose:

  • the name or other identifying particulars (for example, the date of the settlement on the trust) that relate to the foreign trust
  • the name and contact particulars of the resident foreign trustees
  • whether a settlor is resident inAustralia
  • if a resident foreign trustee is a professional resident foreign trustee:
    • the name of the approved professional organisation, and
    • the name and contact particulars of the person whose membership of the approved organisation is claimed
  • if a resident foreign trustee has been appointed by another resident foreign trustee as an agent the names of the agent trustee and the appointing trustee.

Approved professional organisations include:

  • New Zealand Institute of Chartered Accountants;
  • New ZealandLaw Society; and
  • The Society of Trust and Estate Practitioners (New ZealandBranch).

 The disclosure for resident trustees of foreign trust is made on form IR 607 “Foreign trust disclosure”.

A resident trustee for a foreign trust must keep records disclosing the history of the trust’s administration including: 

  • a copy of the trust deed
  • details of settlements onto the trust
  • details of distributions made by the trust
  • a record of assets and liabilities of the trust
  • details of all amounts received and expended by the trustee, and
  • if the trust carries on a business, records of all accounting information system

There are penalties for non-disclosure

A settlor who fails to make the required disclosure can be liable for a fine of up to $50,000.

The New Zealand resident trustee of a foreign trust that fails to disclose or keep records may be taxed in New Zealand on the trust’s worldwide income.

Inland Revenue’s policy is that penalties for failure to make disclosure will not apply if a resident foreign trustee is unaware of the disclosure obligations:

 “If a resident foreign trustee has failed to comply with the new rules but was not aware of these rules, sanctions will not apply. As a matter of practice, if Inland Revenue is aware of the name and contact particulars of a resident foreign trustee, it will notify the trustee of his or her tax responsibilities as a trustee of a foreign trust, seek the required information disclosure and outline the record-keeping requirements. Whether a trustee is aware of his or her tax responsibilities will be a question of fact to be determined on a case-by-case basis, although it can be reasonably assumed that professional trustees and those trustees in the business of providing trustee services will be aware of the new requirements…”  

References:

  • Tax Information Bulletin Vol. 7 No. 4, October 1995, p. 10
  • Tax Information Bulletin Vol. 18 No. 5, June 2006, p. 10
  • Tax Administration Act , s 59, 59B
  • Vicki Ammundsen, Taxation of Trusts, ed 2, CCH New Zealand Limited (2011) chapter 20

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