New Zealand trust tax rate: what to know

Residency and what it changes

Residency drives most of the tax and reporting questions. It matters for the trust, for the settlors and for you.

Inland Revenue treats a trust as a foreign exemption trust when no settlor has been resident in New Zealand since the first settlement, or when its trustee uses the foreign-sourced income exemption (source: Inland Revenue, Foreign exemption trusts).

The exemption sits in section HC 26 of the Income Tax Act 2007 (same source). How it applies to a given family is a question for a New Zealand tax adviser.

A foreign trust must have one or more resident trustees.

Your own residence decides what you declare at home. That is a matter for your own adviser, and we do not advise on it.

Beneficiaries have their own residence too. A beneficiary who lives in another country may have to declare a distribution there, and the rules differ from place to place.

For that reason we ask for residence details of every beneficiary and connected person at the start, not only the settlor’s. The details feed the tax identification numbers that registration asks for, and they let your advisers check each person’s position early.

CRS and FATCA reporting

Two international frameworks sit beside the trust’s own filings: the Common Reporting Standard, known as CRS, and FATCA.

Under the CRS, New Zealand financial institutions do due diligence on accounts, collect the required information and report annually to Inland Revenue (source: Inland Revenue, Common Reporting Standard).

New Zealand financial institutions also report US account holders to Inland Revenue under FATCA, the United States regime (source: Inland Revenue, Foreign Account Tax Compliance Act (FATCA)). Your adviser confirms whether it reaches your trust through its banks.

A trust meets these frameworks mainly through the banks and other institutions that hold its accounts. They ask the trustees for residence forms and identification of the people connected to the trust.

Whether the trust is itself a financial institution depends on what it does. Your adviser confirms how yours is classified.

Expect the bank to ask for a self-certification of tax residence from each controlling person. The questions can look repetitive, but each institution has its own duty to ask.

If the trust holds accounts in several countries, each bank asks separately. We keep one record of the answers, so that the trustees give the same information to every institution.

What the trustee reports and when

The trustees report in three ways.

• On registration. The contact trustee gives the trust deed, the settlements and the details of connected persons.
• Each tax year. The contact trustee or tax agent completes the return and attaches financial statements.
• When things change. Changes to trustees, connected persons or past returns are updated with Inland Revenue.

To keep the exemption, the contact trustee must meet these disclosure and annual return duties (source: Inland Revenue, Foreign exemption trusts).

The set-up guide shows the stage at which registration happens.

Records matter as much as filings. The trustees keep the deed, the settlement records, the accounts and the minutes, so that each return can be supported if Inland Revenue asks.

Whether a late or missing filing affects the exemption is for your accountant to confirm.

We keep a calendar of these dates for you and pass the papers to your accountant. The exact content of each return is confirmed with a New Zealand accountant when the trust is set up.

Your own tax position

The trust has its own filings, and you have yours. We do not give tax advice or promise any tax result.

Take three questions to your own adviser before you sign:

• How does the trust, as a foreign trust, fit the tax rules where you live?
• What do you need to declare about settlements, distributions or benefits you receive?
• Does the structure change reporting for family members in other countries?

We give your advisers the draft deed and the asset list so that everyone works from the same papers.

If a family member moves country, tell the trustees early. A change in residence can change what the trustees collect, what they report and what the family member declares.

Sources and review dates

Sources and review dates are listed below. The pages named above are Inland Revenue’s own guidance.

Whether the foreign-sourced income exemption applies depends on facts that only your adviser can assess for your case.

The overview of New Zealand trusts puts them in context, and the common questions page answers the practical ones.