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Introducing the changes for trusts Video information

Audio and visual transcript

Slide 1 

Introducing the changes for trusts

For tax intermediaries

February 2022

The information in this presentation is current as at 18 February 2022 


Slide 2

Purpose

Introducing the changes for trusts

For:

  • Tax intermediaries

Topics:

  • Additional reporting requirements
  • Exemptions
  • Detail of reporting requirements

Notes

Last year, the Taxation (Income Tax Rate and Other Amendments) Bill was passed, and new reporting requirements for trusts were introduced. In this presentation we’re going to be looking at the changes that have been made to the annual reporting requirements for trusts. These changes were made to improve the transparency of trusts and their financial positions.


Slide 3

Title: Additional reporting requirements

Notes

From the 2022 tax year onwards more information will be required about a trust’s  

  • earnings,  
  • settlements and settlors,  
  • beneficiaries and distributions, and  
  • persons with powers of appointment.  

These changes have been made to help IR understand how trusts are being used to accumulate and distribute income. 

Any trust that makes income in a year, will be required to provide additional disclosures for that year.  

However, some exclusions apply and we’ll cover that off shortly. 


Slide 4 

Title: Additional reporting requirements 

Trustees will be required to provide  

  • financial summaries as part of their annual IR6 returns 
  • information about settlements, settlors, beneficiaries, distributions and persons with power of appointment for the trust. 

Notes 

From 1 April 2021, trusts will be required to provide financial summaries as part of their IR6 annual returns.  

And as I touched on previously, trusts will also be required to provide information about  

  • settlements,  
  • settlors,  
  • beneficiaries,  
  • distributions and  
  • persons with power of appointment for the trust.   

This includes financial summaries with a statement of profit or loss, as well as a statement of financial position.  

They’ll also need to provide - 

  • The details of any person who has made a settlement on a trust, as well as the amount and nature of any settlement made from 1 April 2021 
  • The details of any person who has received a distribution from a trust, and the amount of the distribution. And, 
  • The details of people who have the power to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed.  

These new requirements apply from the 2021-22 tax year onwards. 

I’ll now take you through the exemptions. 


Slide 5 

Title: Exemptions 

Notes 

Generally speaking, any trust that makes income in a year will be required to provide additional disclosures for that year. However, some exemptions do apply. 


Slide 6 

Title: Exemptions 

Any trust that makes income in a year must provide additional disclosures, unless they fall under one of the following categories: 

Notes 

If the trust falls under one of the following categories, they will not be required to provide additional disclosures for that year.

Those categories are:

  • Non-active trusts
  • Foreign trusts
  • Charitable trusts 
  • Trusts eligible to be a Māori authority 
  • Widely-held superannuation funds
  • Employee share schemes
  • Trusts debt funding special purpose vehicles
  • Energy lines trust 

Slide 7

Title: Exemptions

Trusts that do not derive income are encouraged to complete a non-active trust declaration. 

An estate that has estate property held on trust will be required to comply with the new rules.

Notes

Trusts that do not derive income are encouraged to complete a non-active declaration in order to remove the requirement to provide an income tax return. 

A non-active declaration can be submitted through myIR, or you can fill in our Non-active trust declaration form – the IR633.

Estates are not trusts by definition. However, an estate that has progressed to a point that estate property is held on trust, will be required to comply with the new disclosure rules. 


Slide 8

Title: Details of reporting requirements

Notes

Now, let’s take a look at exactly what information you’ll need to provide.


Slide 9

Title: Details of reporting requirements

Statement of profit/loss: 

  • Net profit/loss before tax 

  • Tax adjustments 

  • Untaxed realised gains/receipts

Statement of financial position: 

  • Assets

  • Liabilities

  • Equity

Notes

As part of the new requirements - Statements of profit or loss, must include the following information: 

  • Net profit or loss before tax 

  • Any Tax adjustments and

  • Any Untaxed realised gains and receipts 

A trusts statement of financial position, must include information on:  

  • Assets – including, financial arrangements, land, buildings, shares/ownership interests and total assets

  • It must also cover Liabilities – including, financial arrangements and total liabilities, and lastly

  • Equity - this is broken down into owners’ equity, drawings, current account year-end balances, and movements in beneficiary accounts

The trustees will also need to indicate the valuation methodology applied to the Land, Buildings and Shares/Ownership interests categories of assets.

The ‘total assets’ and ‘total liabilities’ will also need to include any ‘other’ assets or liabilities not captured in the categories I listed earlier.

The minimum standard for financial reporting by trusts will be set by Order In Council or OIC.

The order prescribes what information must be included in the financial statements of trusts, and how items may be valued.  

There is a de-minimis threshold that relaxes the minimum standard for trusts with income, expenses and assets under a set threshold. However, all trusts will still be required to provide the new financial metrics in the IR6.

The OIC also prescribes the disclosure of movements in beneficiary accounts, I’ll discuss this in more detail later, in the context of beneficiaries and distributions

An Officials Paper proposing the making of this Order in Council was publically consulted on. Consultation closed on 15 November 2021 

The Government is considering officials’ recommendations and the OIC is expected to be made in early March 2022. The Operational Statement that was out for consultation last year will also be finalised and issued in late March.


Slide 10

Title: Detail of reporting requirements

Settlor:

  • A person or entity that has transferred value to a trust (that is not incidental services)

  • The transfer of value is known as a 'settlement'

  • This person does not have to be named in the trust deed, if they transfer value then they are deemed to be a settlor

Distribution:

  • A transfer of value from the trust to a beneficiary.  

  • The persons who are beneficiaries of the trust will depend on the terms of the trust deed.  

  • Transferring value to a person who is not an eligible beneficiary does not deem them to be one 

Person with power of appointment: 

• Any person who has the power to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed.

Notes

As we’ve already mentioned, trusts will be also be required to provide information about settlors, settlements, beneficiaries, distributions and persons with power of appointment for the trust. 

Before we list what is required for each, I’ll cover what some of these terms mean:

Settlor is defined in HC 27: 

  • A person or entity that has transferred value to a trust (whether directly or indirectly), 

  • The transfer of value is known as a 'settlement'.  

  • This person does not have to be named in the trust deed, if they transfer value to the trust then they are deemed to be a settlor

Distribution is defined in HC 14: 

  • A transfer of value from the trust to person because the person is a beneficiary of the trust.  

  • The persons who are beneficiaries of the trust will depend on the terms of the trust deed.  

  • Transferring value to a person who is not an eligible beneficiary does not deem them to be one 

Person with power of appointment: 

• Any person who has the power to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed as outlined in section 59BA(2)(e) of the new rules.


Slide 11

Title: Detail of reporting requirements

Settlors and settlements:

  • Full name,

  • Date of birth or commencement date,

  • Jurisdiction of tax residency,

  • IRD number or Tax Identification Number, and

  • Details of settlements during the year

Notes

For settlors and settlements you will need to provide the settlors:

  • Full name,

  • Date of birth or commencement date (for non-individuals) 

  • Jurisdiction of tax residency 

  • IRD number, or Tax Identification Number (for those not resident in NZ) 

And you will also need to provide details of any settlements made during the year, including cash, financial arrangements, land, buildings, shares/ownership interests, services, settlements that have been valued at zero and other (with a description)

The existing tax law around settlements dictates what a settlement is, noting that

  • Settlements that are ‘minor or incidental’ are not settlements in the first instance, so are not required to be disclosed (nor the details of the person making the settlement) [HC 27];

  • The amount and nature of settlements of minor services incidental to the operation of the trust (not excluded under HC 27) are not required to be disclosed (but the details of the settlor are still required) [59BA(2)(b)(i)].

As the existing tax law around settlements dictates the value applied to these transactions, there are instances where the amount of the settlement will be NIL, in particular:

  • Settlements of things that cannot be distributed to beneficiaries, such as the value of interest not charged on loans to the trust, or the provision of services to the trust [HC 4(5)];

  • The details of the settlor must still be disclosed and there will be an option to indicate that there is a settlement in the current income year, but that it has been valued at zero;

  • All other settlements must be valued at ‘market value’ [HC 4(1)]


Slide 12

Title: Settlors and settlements

An image shows the new return attachment that will be available for settlors details.

Notes

Details of current year Settlements (Settlor, amount, nature) will need to be included on a new return attachment available in myIR and the Income tax return service in Gateway services.

On screen you can see the new return attachment and the different fields that are available – we are currently in the testing phase for this attachment, so the final product may differ slightly.

You may have noticed earlier that I said ‘The details of any person who has made a historic settlement on a trust’ this is because any person who has ever made a settlement on a trust must be disclosed, but the ‘amount and nature’ of the settlement is only those made from 1 April 2021 onwards

This means trustees must disclose the details of historical settlors, for the lifetime of the trust. From a practical perspective this might not be possible, so there is an option to indicate that the details are to the best of the trustees knowledge but relate to historical transactions so all four pieces of information are not available.

Information on historic settlors also needs to be completed/filed on this new return attachment in the first year that the trust needs to comply with the new requirements.


Slide 13

Title: Beneficiaries and distributions

An image shows the new beneficiary details fields

Notes

For beneficiaries and distributions, you will need to provide the beneficiaries’:

  • Full name,

  • Date of birth or commencement date (for non-individuals), 

  • Jurisdiction of tax residency, 

  • IRD number, or Tax Identification Number


Slide 14

Title: Beneficiaries and distributions

An image shows the new beneficiary details fields

Notes

In addition to the other existing fields, there is also a new section where you will need to provide details on any movements in beneficiary accounts, including:

  • opening balance,

  • distributions (accounting income, corpus, capital, use of trust property for less than market value, distribution of trust assets and forgiveness of debt),

  • amounts withdrawn or enjoyed, and the

  • closing balance 


Slide 15

Title: Person with power of appointment

The image shows a list of persons with power of appointment as it shows in myIR

Notes

Persons with power of appointment cannot be added/edited when filing the income tax return, but they will be able to be added or updated at any time through myIR. 

myIR will show a table of persons with power of appointment – as shown on screen. If you want to add another person with power of appointment through myIR - you can do this by clicking on ‘add power of appointment’ as shown in the bottom left-hand corner. 

Alternatively, if you want to update an existing person, you can click on the pencil beside their name. 

A new paper form will also be available as an alternative. 


Slide 16

Title: Person with power of appointment

The image shows the fields required to add a new person with power of appointment in myIR.

Notes

When adding a person with power of appointment, you must provide their:

  • Full name,

  • Date of birth or, for non-individuals, commencement date 

  • Jurisdiction of tax residency 

  • IRD number, or, for those not resident in NZ, the Tax Identification Number

This is to assist IR with validating the information and identity of the person. So even if a valid IRD number is supplied, the name and DOB are still required to ensure the trustee has entered the correct IRD number.


Slide 17

Title: Detail of reporting requirements

000-000-000 cannot be entered as an IRD number.

You will be able to indicate if a person/entity does not have an IRD number.

Notes

The final change to mention is that, if a trust meets the new reporting requirements, you will no longer be able to enter 000-000-000 as an IRD number on the IR6B attachment for beneficiaries or the new IR6S for settlors.

If the person or entity has an IRD number, then we need it. If that person does not have an IRD number or TIN (either because they are not required to have one, or the jurisdiction they are resident in does not issue tax identification numbers), there will be an option to indicate this.


Slide 18

Thank you

To view our other webinars visit www.ird.govt.nz/2022-changes

If you have any questions about our webinar, please email [email protected]

Notes

That brings us to the end of our presentation – I hope you found this webinar useful.

Our guides and web content will be updated with more information ahead of 1 April. We’re also in the process of drafting a guided help page that will allow trustees to determine if they need to comply. Once finalised, this will be made available on our website.

If you want to find out more about the other upcoming changes please visit the link on screen.

If you have any questions about our webinars, please send them to the address on screen.

Thank you for you for joining us, ngā mihi.

Last updated: 20 Feb 2022
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