In a nutshell, from the 2021-22 income year, most New Zealand trusts must:
- File an income tax return
- Comply with a list of additional disclosures
- Prepare financial statements
Non-active complying trusts without any income are exempt from these three requirements. Non-active complying trusts with income of $200 or less in interest income are also exempt, provided they complete an IR633 declaration.
The additional disclosures are incorporated into the 2022 trust tax return and associated forms IR6B, IR6S and IR6P.
The following trusts must file a tax return but are exempt from the additional disclosures: foreign trusts, charitable trusts, trusts that are eligible to be Maori Authorities, widely-held superannuation funds, exempt employee share schemes, debt funding special purpose vehicles and lines trusts.
The additional disclosures required for trusts in the IR6 are:
- A statement of profit or loss and a statement of financial position
- The amount and nature of all settlements made to the trust in the income year (excluding minor services incidental to the activities of the trust provided at less than market value)
- The name, date of birth, jurisdiction of tax residence, and tax file number/taxpayer identification number of all settlors who have made a settlement on the trust in the income year, or settlors whose details have not previously been supplied to Inland Revenue
- The amount and nature of all distributions made by trustees of the trust in the income year (excluding minor, non-monetary distributions that are incidental to the activities of the trust)
- The name, date of birth, jurisdiction of tax residence, and tax file number/taxpayer identification number, of all beneficiaries receiving such a distribution
- The name, date of birth, jurisdiction of tax residence, and tax file number/taxpayer identification number, of each person having a power of appointment under the trust deed (including the power to appoint or dismiss a trustee, add or remove a beneficiary, or amend the trust deed).
In addition to the tax return and the disclosures set out above, from 31 March 2022 most trusts will also have to prepare financial statements. Unless a trust is a non-active complying trust with no income or income of $200 or less in interest, it will have to prepare financial statements. While these financial statements are not filed with the IR6, they must be made available if Inland Revenue requests to see them.
The requirements for the financial statements are set out in the Tax Administration (Financial Statements – Domestic Trusts) Order 2022. The precise requirements for these differ depending on whether the trust is a “simplified reporting trust”. The two-level compliance levels are a concession from Inland Revenue, resulting in less stringent requirements for simplified reporting trusts.
Simplified reporting trust
A simplified reporting trust is one that has:
- Assessable income of less than $100,000 in an income year
- Deductible income of less than $100,000 in an income year
- Total assets of less than $5m
Details of financial statements
All trusts required to file a tax return must prepare financial statements to a minimum standard that includes:
- A statement of financial position (showing assets and liabilities of the trust using one or more of three specified valuation methods, and state which type is used)
- A statement of profit or loss (showing income derived and expenditure incurred)
- Using the double-entry method of recording transactions
- Disclose the type of valuation principle adopted for shares/ownership interests, land and buildings
In addition to the above requirements, the financial statements for trusts that are not simplified reporting trusts must:
- Be prepared applying the principles of accrual accounting
- Include a statement of accounting policies
- Disclose comparable figures for the previous income year to the extent that the trustee has that information
- Include a reconciliation between the profit or loss in the statement of profit or loss to taxable income
- Include an appropriately detailed schedule of the trust’s fixed assets and depreciable property used for tax purposes
- Disclose details of any below market value transactions between a trustee and an associated person (aside from minor transactions incidental to the trust’s activities) including the person’s name, the nature of the association, the nature of the transaction and the amounts involved
Trusts with forestry businesses must include information about the cost of timber at the end of the income year. Trusts owning specified livestock business must include details of livestock valuation methods, valuations and calculations for tax purposes.
The operational statement is based on ss 43B, 59BA and 59BAB of the Tax Administration Act 1994 and the Tax Administration (Financial Statements – Domestic Trusts) Order 2022 and applies from 6 April 2022.