Trusts and estates: Filing tax returns
The trustee must file an Income tax return: estate or trust (IR6) for the trust each year (this return is separate from the trustee's own personal tax return). In the IR6 return the trustee shows:
- all income derived by the trust
- the tax credits relating to that income
- the allocation of income between beneficiary and trustee income, and
- any taxable distributions made.
The trustee then calculates the tax payable on the beneficiary income, trustee income and taxable distributions. An Estate or trust beneficiary details (IR6B) needs to be filled out for each beneficiary. This is then included in the IR6.
The beneficiaries can then claim a credit for tax paid on their beneficiary income and taxable distributions (and their share of tax credits) in their own personal income tax returns.
Note: A trust cannot choose to allocate credits to beneficiaries who may be better able to use them than other beneficiaries. The imputation credits and FDP (foreign dividend payment), formerly dividend withholding payment, credits attached to dividends distributed as beneficiary income must be allocated in proportion to the total distributions received from the trust.
The beneficiaries' tax returns
If you receive beneficiary income from any type of trust, or a taxable distribution from a foreign trust, you must file a tax return for that year. Include this income in your tax return and pay tax on it at your normal rates. You can claim a credit for any tax the trust has deducted before they paid the income to you. However, if the tax was deducted overseas, the maximum credit a New Zealand beneficiary can claim is the amount of New Zealand income tax payable on their share of the overseas trust income.
If the trust's balance date is not 31 March, you must include any income from the trust in your tax return for the year that corresponds with the trust's accounting year. There is no need to make any separate calculations to allow for a difference in balance dates.
If you receive beneficiary income or taxable distributions from a foreign or non-complying trust (formerly non-qualifying trust), you should fill in the details of the trust income on a Schedule of beneficiary's estate or trust income (IR307) form, and include this form with your tax return. If the trust has a New Zealand tax agent, this agent will usually fill in an IR307 form for each beneficiary to include with their Individual tax return (IR3). These forms will show you how much income to declare, and the amount of any tax credits to claim. You can download a copy of the Schedule of beneficiary's estate or trust income (IR307) or order one by calling our 0800 self-service line on 0800 257 773.
Any taxable distributions a beneficiary receives from a non-complying trust are to be included separately in the beneficiary's tax return. These distributions will be taxed separately at a flat rate of 45 cents in the dollar.
Tax returns for a deceased person's estate
The personal representative, executor or administrator of a deceased person's estate must file all tax returns the deceased person would otherwise have had to file, and make sure any tax due is paid. The tax return for the period to the date of death must include all gross income the deceased person derived up until that date. It will be an Individual tax return (IR3),and it will use the deceased person's IRD number.
After the date of death, the person's estate will get a new IRD number, and its income must be returned in an Income tax return: estate or trust (IR6). The first estate return will include all income derived and expenditure incurred from the date of death until the end of the return period.
Even after an estate has been wound up, we can audit the deceased person's tax returns for previous years. If more tax becomes payable as a result of such an audit, the estate is still liable to pay this tax. If there are no estate funds available because the final distribution has been made, the executor or administrator is liable to pay the extra tax assessed.
Date published: 29 Jun 2010