Complying trusts

Find out the definition of a complying trust and how to become a complying trust.

Definition of a complying trust

A trust will only be a complying trust if the trustees have met (complied with) all the trust’s income tax obligations since the date it began.

Other trusts can elect to become a complying trust by making an election and meeting their obligations.

Complying trusts may include:

• trusts settled by New Zealand tax residents
• estates of people who were New Zealand residents when they died
• other trusts which have elected to become a complying trust.

If a trust no longer meets the requirements for a complying trust, it will become a non-complying trust.

Note: a complying trust will remain a complying trust even if 1 or more of the following apply:

• the trust has no trustee income and there is no tax liability
• 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 trust's net income.

Not a complying trust

Without an election, a trust is not a complying trust if 1 or both of the following apply:

• any trustee income includes non-resident passive income
• the trustees earn foreign-sourced income which is not taxable in New Zealand.

Electing to become a complying trust

In some situations, a foreign trust or a non-complying trust can elect to become a complying trust.

The trustee, settlor or beneficiary must elect to pay tax on the trustees' worldwide income, like a complying trust does.

Benefits of making an election

Once a trust becomes a complying trust, all ‘other distributions’ to beneficiaries will be non-taxable.

Tax on other distributions

How to make an election

The person making the election needs to fill in an Election to pay income tax on trustee income - IR463 form and send it to us. The IR463 also has more information about which trusts can make an election, due dates, and the effects of an election.

Once an election has been made, the person will need to indicate that the trust continues to qualify as a complying trust in their tax return each year.