Trust and estate changes

Title: Trusts and Estates Webinar

Changes coming in April 2024

Voice

Kia ora everyone and welcome to this webinar.

My name is Rian Shearman and with me today is Vicki Cronin

We are both External Relationship Managers at Inland Revenue.

The information in this presentation is correct as of 14 March 2024 and may be subject to change.

Nau mai

haere mai

Welcome

Title: Topics

• Trust and Estate Return changes
• Trustee tax rate changes

Voice

In this webinar we will be taking you through the changes that relate to trusts and estates. We’ll cover the upcoming changes for the trust and estate return, and trustee tax rate.

Title: Trust and Estate return changes

Image: A person sitting at a table with a pen and paper and a laptop computer.

Voice

A number of changes have been made to the layout of the trust and estate return. This is to align the financial information in the trust return to the standard layout of financial statements, making it easier to complete. These changes will be for the 2023/24 income year and be seen on the 23/24 income tax return.

We will now explore what these changes look like, over the following slides.

Title: Layout of 2024 Trust & Estate Return

Sub-heading: IR6 Page 4

Image: Page 4 of IR6 with bullet points highlighting the changes

Current account reflected under assets

Key point to capture ‘Other’ assets

‘Total assets’ is now a calculated field

Current account reflected under liabilities

Key point to capture ‘Other’ liabilities

‘Total liabilities’ is now a calculated field

‘Owner's equity’ renamed ‘Accumulated Trust Funds’

‘Untaxed gains’ appears under a separate sub-heading

‘Drawings’ appears under a separate sub-heading

Voice

Here we see a screenshot showing most of the layout changes as they appear on page 4 of the IR 6 Estate & Trust Return.

• ‘Current account year-end balances’ are now reflected under the asset and liability sections of the form.
• Two new keypoints have been added to capture ‘Other’ assets and liabilities.
• ‘Total assets’ and ‘Total liabilities’ are now calculated fields to reflect a sum of the component parts.
• ‘Owner's equity’ has been renamed “Accumulated Trust Funds” and is a calculated value based on total assets minus total liabilities.
• Untaxed gains’ and ‘Drawings’ now appear under a separate sub-heading.

The IR 6F form - Trust financial disclosure for superannuation funds that are not widely held has also been updated and aligns with page 4 of the IR6 Return.

Title: Estate & Trust return changes

Sub-title: Distributions valued at Nil

Image: IR6B showing the new tick box Beneficiary account movements

A new tick box on the IR6B to indicate where a beneficiary has received a distribution that has been valued at NIL.

Voice

Another change we will show you today is to the IR6B – the form for Estate or trust beneficiary details. 

A new tick box has been added – seen here highlighted in yellow, on the paper form.

If a beneficiary has received a distribution that has been valued at NIL, this box should be ticked. Trusts are required to disclose the nature and amount of all distributions to beneficiaries, including distributions that have been valued at NIL. 

As an Example of a distribution valued at nil.

• The Trust owns a house which Matt, a beneficiary, lives in. 
• During the year Matt pays the outgoings on the property for example. rates, insurance and repairs.
• The trust does not incur any other costs.
• A ‘distribution’ arises as Matt has received something of value (in this case free accommodation) from the trust.
• As the trust has not incurred costs in making the property available to Matt to live in, the distribution is valued at NIL.
• When it comes time to file, this distribution is indicated by placing a tick into this box.

Title: Estate & Trust return changes

Sub-title: Incorrect IRD number disclosed

Image: A screenshot of the IR6B in myIR

New prompt to recheck the information on the return if a duplicate IRD number is entered.

An error will show where:

• the IRD number of the trust has been entered as the beneficiary, the settlor, or person with powers.
• an IRD number has been duplicated in the beneficiary, settlor, or person with powers keypoint.

Voice

A change has been implemented to prompt a re-check of the information on the return if a duplicate IRD number is entered. 

The amendment is a type of ‘validation stop’ on the IRD number field, and will show an error where :

• the IRD number of the trust has been entered as the beneficiary, the settlor, or person with powers.
• Or where an IRD number has been duplicated in the beneficiary, settlor, or person with powers keypoint.

If either of these scenarios happens, the error must be corrected before continuing. (If the person does not have an IRD number there is an additional box to tick to indicate that)

Title: Estate & Trust return changes

Sub-title: Other changes

Allocating negative beneficiary income in the IR6B

Amendments to the IR6B – Estate or trust beneficiary income form so negative values cannot be included in Box 27D to Box 27I.

Ceasing a trust

The question when asking about the trust being wound up or ceased will appear in the same place and use the same words across Paper and myIR. 

Voice

There are also a couple of smaller changes to the trust return

The IR6B – Estate or trust beneficiary income form is to be amended so that negative values cannot be included in Box 27D to Box 27I.

And to make it easier and cohesive across all versions of the return, the question when asking about the trust being wound up or ceased will appear in the same place and use the same words across Paper and myIR. 

We will now see an example as it appears in myIR.

Title: Estate & Trust return changes

Sub-title: Other changes – Ceasing a Trust wording in myIR

Image: A screenshot of the IR6B in myIR at the Specific situations section

New wording will appear in myIR to align with paper return.

Voice

Highlighted here in yellow is the new wording that will appear in myIR, to align this question with the paper return.

The intent of this change is to minimise the chance of ticking this box accidentally when a trust still own assets but no longer derives income, - for example the trust might have ceased trading or deriving income but has not been completely wound up.

I will now hand you over to Vicki.

Title: Trustee tax rate change

Image: A person at a desk writing into a book

Voice

Thanks Rian. The second topic we will cover today is changes to the Trustee tax rate

The proposed increase in the trustee tax rate will apply from 1 April 2024 onwards.

Title: Trustee tax rate change

Sub-title: Trustee tax rate increase

The tax rate that applies to trustee income will increase from 33% to 39% where the trustee’s net income exceeds $10,000.

Where the Trustee’s income exceeds $10,000, the total income is taxed at the 39% rate.

This is applicable for the 2024–25 and later income years

Voice

The tax rate that applies to trustee income will increase from 33% to 39% where the trustee’s net income exceeds $10,000. If the net income is under $10,000 the trustee income tax rate remain at 33%.

Where the Trustee’s income exceeds $10,000, the total income is taxed at the 39% rate - not just the income over $10,000.

This is applicable from the 2024–25 income year (beginning 1 April 2024 for most trusts) and aligns the trustee tax rate to the top rate of Income tax.

Title: Trustee tax rate change

Sub-title: Corporate beneficiary

Corporate beneficiary rule

The 39% rate will apply to any income distributed to a beneficiary that is

• a closely held company, and
• the settlor of the Trust is a shareholder of that company, or holds natural love and affection for a shareholder of that company.

Voice

Corporate beneficiary rule

The 39% rate will apply to any income distributed to a beneficiary that is a closely held company, (but not a Māori Authority or a Tax Charity) and the settlor of the Trust is a shareholder of that company, or holds natural love and affection for a shareholder of that company

It will not be taxed at the company tax rate.

This will not apply where the trust is a securitisation trust.

This is similar to the existing tax application to the minor beneficiary rule.

Our next slide will show you the new fields on the trust income tax return in myIR.

Title: Trustee tax rate change

Sub-title: Change to myIR to reflect new Corporate Beneficiary rule

Image: MyIR screenshot of the new field on the trust income tax return

You will need to indicate in myIR where the new corporate beneficiary rule applies

Voice

We will have a new field on the trust income tax return to capture the distributions separate from beneficiary & trustee income - seen here in yellow.

You will need to indicate in myIR where the new corporate beneficiary rule applies.

The company will not return the income and will not have any tax credit entitlement for the tax paid by the trust, the tax liability will arise in the trust.

Title: Trustee tax rate change

Sub-title: For deceased estates

Estate income will continue to be taxed at 33% for the year of death and 3 subsequent income years.

Ordinary trustee tax rate rules apply for later income years.

Applies where death occurred in the 2021 income year onwards.

Example: A person passes away on 30 December 2020

This event falls into the 2021 income year. 

The 3 subsequent income years are 2022, 2023 & 2024.

If the Estate continues into 2025 and has income over $10,000 the 39% rate will apply to that income. 

Voice

Now we’ll look at the trustee tax rate change for deceased estates.

Estate income will continue to be taxed at 33% for the year of death and 3 subsequent income years.

Ordinary trustee tax rate rules will be applicable for later income years.

The change will apply where death occurred in the 2021 income year onwards. If the estate is within the specified timeframe when these changes take effect, they are still eligible for the remaining time.

Example – A person passes away on 30 December 2020, this event falls into the 2021 income year. The 3 subsequent income years are 2022, 2023 & 2024. If the Estate continues into the 2025 year and has income over $10,000 the 39% rate will apply to that income. 

Title: Trustee tax rate change

Sub-title: For disabled-beneficiary trusts

Trustee income of a disabled beneficiary trust will continue to be taxed at 33%.

A ‘disabled beneficiary’ is defined as people receiving any of the following support payments:

• disability allowance,
• child disability allowance,
• supported living payment on the ground of restricted work capacity, or
• the JobSeeker Health Conditions and Disability (if paid for at least 6 months).

Includes people aged 65+ who meet the definition of ‘disabled beneficiary’ in the income year they turned 65 or the income year before that year.

Voice

There’s also a trustee tax rate change for Disabled beneficiary trusts.

Trustee income of a disabled beneficiary trust will not be subject to the 39% tax rate - it will continue to be taxed at 33%.

"Disabled beneficiary" is defined to mean people receiving any of the following support payments in the relevant income year:

• A disability allowance,
• child disability allowance,
• supported living payment on the grounds of restricted work capacity, or
• the JobSeeker Health Conditions and Disability (if this has been paid for at least 6 months).

The definition also includes people aged 65 and over who move from disability payments onto NZ super, and who have satisfied the definition of "disabled beneficiary" in the income year they turned 65 or the income year prior.

If there is more than one beneficiary - all beneficiaries of the trust must meet the definition of disabled beneficiary for this to apply

We will now take a look at how this information appears in myIR

Title: Trustee tax rate change

Sub-title: For disabled-beneficiary trusts – myIR

Image: MyIR screenshot of new option under disclosures

New option for when trust meets disabled beneficiary requirements

Voice

This screenshot shows here in yellow, the new option added for you to disclose when a Trust meets the disabled beneficiary requirements.

Ticking this Box will open a further field that we will see in the next slide.

Title: Trustee tax rate change

Sub-title: For disabled-beneficiary trusts – myIR

Image: MyIR screenshot of new Disables beneficiary trust requirements and declaration

Disabled beneficiary trust requirements

Declaration

Voice

Having ticked the Disabled beneficiary trust box in the previous slide, myIR will now display the Disabled beneficiary trust requirements and a declaration that needs to be completed for the lower 33% trustee tax rate to apply.

Title: Trustee tax rate change

Sub-title: Other changes

Energy consumer trusts

Trustee income will continue to be taxed at the 33% rate.

Legacy superannuation fund trusts

Trusts that are a registered superannuation schemes will be grand-parented into the widely held superannuation fund trust definition.

Trustee income taxed at 28% where they would have satisfied the widely held test at an earlier time.

Voice

There are some other clarifications relating to the change in trustee tax rate.

Energy consumer trustee income will continue to be taxed at the 33% rate.

And trusts that are a registered superannuation schemes will be grand-parented into the widely held superannuation fund trust definition, meaning Trustee income of this type will be taxed at 28% where they would have satisfied the widely held test at an earlier time.

Image: Inland Revenue logo

www.ird.govt.nz/April-Release

Thank you

Voice

That brings us to the end of our trusts and estates webinar.

Our website content and guides are being updated with more information about the changes. These will be available from 1 April. 

If you want to find out more about the other webinars we’re going to be running, go to www.ird.govt.nz/April-Release

Thank you for watching.