New reporting requirements for most domestic trusts

15 October 2021

Last year, the Taxation (Income Tax Rate and Other Amendments) Bill was passed, and new reporting requirements for trusts were introduced.

Consultation on new reporting requirements

From the 2021-22 tax year most trustees will need to prepare financial statements and provide additional information with their income tax returns.

Inland Revenue has published two documents for public consultation:

An Officials Paper on the Order In Council (OIC) which prescribes the minimum standard for financial reporting by trustees; and
A draft Operational Statement (OS) setting out Inland Revenue’s proposed approach to applying the trust information-gathering powers contained in sections 59BA and 59BAB of the Tax Administration Act 1994.

Trustees will be required to provide:

Summary financial information from their statement of profit or loss and statement of financial position which will be prepared to the minimum standard prescribed by the OIC;
The nature and amount of any settlement made on the trust during the year;
The details of anyone who is a settlor of the trust;
The amount of any distributions made during the year, and the details of the beneficiary who received the distribution;
Details of any person who has powers to appoint or remove trustees and beneficiaries or amend the trust deed.

Key areas that we are seeking feedback on are:

Do you have any comment on the specific items proposed?
Should small trusts be partially exempt from these requirements, and if so, is exemption from the following requirements appropriate:
- The requirement to apply the principles of accrual accounting (cash accounting will be acceptable for small trusts)
- The requirement to provide a statement of accounting policies
- The requirement to disclose comparable figures for the previous income year.
If there is to be a partial exemption for small trusts, is the proposed $30,000 income and $30,000 expenditure threshold, and the requirement that the value of total trust assets did not exceed $2,000,000 within that income year, appropriate?
Do you have any comment on the specific items proposed to be included in the schedule?
Are there associated persons transactions that should be excluded from the minimum requirements for trustees? If so, why?

Any other feedback is also welcome. The deadline for submissions is Monday 15 November 2021.

Key areas that we are seeking feedback on are:

Whether compliance with the proposals will place an unreasonable burden on customers and if so, what specific areas could be modified or clarified to alleviate the cost of compliance;
The proposed approach to calculating opening balances of assets, liabilities and equity in the first year that trustees are required to provide financial information;
The approach to valuation of settlements;
The approach to minor services incidental to the activities of the trust, and whether further clarity is required around the words ‘minor’ and ‘incidental’;
The practicalities of obtaining the required information about historical settlors;
The approach to capturing information about distributions and movements in beneficiary current accounts.

Any other feedback is also welcome. The deadline for submissions is Tuesday 30 November 2021.