Trusts are not treated as separate entities for income tax purposes. Consequently, there are no rules in the Income Tax Act governing the residence of trusts.
The New Zealand tax obligations of your family trust will depend on how your trust is classified under New Zealand law.
The New Zealand trust regime is a "settlor" based regime. This means that the New Zealand tax treatment of the trust depends on where the settlor of the trust is resident.
The New Zealand trust regime defines three types of trusts:
As a trust does not have a legal personality, there is no concept of residency for trusts. However, a trust is recognised as a New Zealand taxpayer and therefore New Zealand generally verifies the residency of the trustee.
If you are a settlor of an offshore trust, it will be treated as a "foreign trust" for New Zealand tax purposes until you become a New Zealand tax resident. This might occur at the time:
Once you become a New Zealand resident, your family trust will be treated as a "non-complying trust". You can make an election within 12 months for your family trust to become a complying trust.
Having determined the status of your family trust in New Zealand, the trust will have the following tax obligations:
Your tax obligation depends on the type of trust from which you receive the distribution.
You are taxable on beneficiary income received from a complying trust and you must return the income in your tax return. You are not liable for income tax if the distribution is accumulated income of the trust.
The distribution you receive from a foreign trust is not taxable if it is:
The exemption for capital gains does not apply to the gains the foreign trust derives from transactions between associated persons. All other distributions are taxable.
Distributions from a non-complying trust to a beneficiary are subject to full New Zealand tax at a rate of 45%. A New Zealand resident settlor might also be liable for the income tax of the trust as an agent of the trustees.