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Trusts and estates: Beneficiaries
As well as distributing beneficiary income, a trust can distribute money or assets to its beneficiaries in any of these ways:
- by distributing trustee income accumulated in previous years
- by distributing capital profits or gains made from disposing of some of its assets or property
- by supplying trust property or services to the beneficiary for less than full value
- by acquiring property or services from the beneficiary for more than full value
- by making a distribution from the trust's corpus - corpus is capital of the trust, equal to the market value of property settled on a trust at the date of settlement.
A beneficiary who receives such a distribution may have to pay income tax on it, depending on the type of trust making the distribution. This is why the difference between complying trusts (formerly qualifying trusts), foreign trusts and non-complying (formerly non-qualifying trusts) is significant.
Distributions of accumulated trustee income and capital profits or gains that were derived by the trust in the 1988 or earlier income years are not treated as taxable distributions.
The table below summarises which of the distributions made by each of the three classifications of trust are taxable and non-taxable.
|Complying trust (formerly Qualifying trust)||Only beneficiary income.||Everything else.|
|Foreign trust||Beneficiary income and everything except corpus and capital gains from non-associated persons.||Corpus and capital gains from transactions with non-associated persons.|
|Non-complying trust (formerly Non-qualifying trust)||Beneficiary income and everything except corpus.||Corpus|
Non-complying trust (formerly non-qualifying trust)
If the beneficiary receiving the taxable distribution from a non-complying trust is a New Zealand resident, the taxable distribution is included in the person's tax return with their other income for the year. The taxable distribution will be taxed at a rate of 45 cents in the dollar. Distributions of beneficiary income are taxed at the beneficiary's normal tax rates.