Trusts and estates: Types of trusts
Complying trusts (formerly qualifying trusts)
A complying trust is one which has been taxed in New Zealand on all its trustee income since the date it began. Complying trusts include:
- trusts settled by New Zealand residents with New Zealand trustees
- estates of people who were New Zealand residents when they died
- other trusts which have elected to become complying trusts.
A trust remains a complying trust if, since settlement of the trust, the trustees have satisfied all obligations in respect of its income tax liabilities.
A trust is not a complying trust if:
- the only trustee income is non-resident withholding income, or
- the trustees earn foreign-sourced income excluded from the meaning of assessable income.
If a trust ceases to meet the conditions for a complying trust in an income year, it will no longer be a complying trust - it will generally become a non-complying (formerly non-qualifying trust), for example, if the tax on a complying trust's trustee income is not paid, or if the trustees cease to be New Zealand residents.
Retaining complying status
A complying trust will not lose its complying status simply because one or more of the following apply, as there is no tax due on trustee income:
- the trust has no trustee income
- the only trustee income is tax-exempt
- the trust's deductible expenses or losses exceed the trustee income, so there is no tax payable on the net trustee income.
A trust will be a foreign trust if none of its settlors have been resident in New Zealand since the later of these dates:
- 17 December 1987
- the date the trust was first settled.
A trust will cease to be a foreign trust if it makes any distribution after a settlor becomes a New Zealand resident, or if a New Zealand resident makes a settlement on the trust.
Non-complying trusts (formerly non-qualifying trusts)
A non-complying trust is any trust that is neither a complying trust nor a foreign trust at the time it makes a distribution. It is generally a trust that has a resident settlor, has been established overseas with non-resident trustees, and has not been liable for New Zealand income tax since it was first settled. It also includes a trust where its trustee income has been liable to full New Zealand tax but the trustees have not paid the tax.
New arrivals in New Zealand
New residents who arrive in New Zealand may have settled a trust before they arrived in this country. Such a trust would normally be a foreign trust, but it can elect to become a complying trust.
To change types, the trust must elect to pay New Zealand income tax on its trustee income within 12 months of when the settlor first arrives in New Zealand. The trustee income will then become taxable in New Zealand from the date the trust makes the election. The trust should use an Election to pay income tax on trustee income (IR463) form to make this election. You can download a copy - see "Forms and guides" or order one by calling our 0800 self-service line on 0800 257 773.
If the trust does not make an election, it will be treated as one of the following:
- a foreign trust, for any distribution that consists of income, capital profits or capital gains derived before the election expiry date
- a non-complying trust, for any distribution that consists of income, capital profits or capital gains derived after the election expiry date.
Date published: 10 Oct 2008
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