Lauren Williams focuses on the recent introduction of disclosure and record requirements for the New Zealand Trust.
NEW ZEALAND IS NOW widely accepted as a centre for international estate and asset planning. Unlike other jurisdictions in the international investment world, New Zealand has never adopted specific legislation in order to target this industry.
The leading product in this market is the New Zealand trust – a trust with a non- New Zealand resident settlor and a New Zealand resident trustee, a result of which is that the trust will not be taxed in New Zealand on all non-New Zealand sourced income.
The New Zealand foreign trust industry relies on longstanding tax legislation (originally enacted in 1988 and consolidated in 1994) which codified the foreign trust concept and general trust law (being English common law and equity which was adopted in 1840 and the Trustee Act 1956).
The only significant change that has occurred recently relating to the foreign trust industry has been an amendment to the tax legislation which introduced new disclosure and record keeping requirements. The New Zealand Government introduced this new legislation in 2006 in response to a request from the Australian Treasury and its obligations under the Closer Economic Relations Act with Australia.
Information disclosure rules
The New Zealand resident trustee of a foreign trust is required to provide the following limited information to the New Zealand Inland Revenue Department (the IRD):
The disclosure rules became effective from 1 October 2006. New Zealand resident trustees who were appointed after this date have 30 days from the date of appointment to make the disclosures to the IRD. If the New Zealand resident trustee was appointed prior to 1 October 2006, it had until 30 November 2006 to make the disclosures.
The New Zealand resident trustee of a foreign trust is required to maintain written records in English to enable the trustee to readily ascertain the financial position of the trust. The records must be retained for a period of at least seven years following the end of each fiscal year. ‘Records’, includes documents that evidence the creation and constitution of the trust (the trust deed), particulars of settlements and distributions (including the name and address of the settlor and the recipient beneficiary, if known), and documents showing the assets and liabilities of the trust and all entries from day to day of all sums of money received and expended by the trustee in relation to the trust.
If the foreign trust ‘carries on business’ then further detailed accounting information must be maintained by the New Zealand resident trustee. The records must be maintained in New Zealand unless the New Zealand resident trustee obtains authorisation from the IRD to maintain them outside New Zealand.
The New Zealand resident trustee may also seek approval to maintain the records in a language other than English. These record keeping requirements came into effect on 1 October 2006.
Where the foreign trust does not have a qualifying resident foreign trustee and the trustee does not comply with the disclosure rules, the trust will become liable to New Zealand income tax on its worldwide income until such time as the information requested by the IRD has been provided. The trustee and its offi cers may also be subject to penalties by way of fi nes and/or imprisonment.
In the case of a corporate trustee, a trustee will be a qualifying resident foreign trustee if at least one director of the trustee company is a New Zealand resident and is a member of an ‘approved organisation’. The IRD has so far approved the New Zealand Law Society, the New Zealand Institute of Chartered Accountants and full members of the Society of Trust and Estate Practitioners as approved organisations.
Where the foreign trust does have a qualifying resident foreign trustee, that trustee is also required to comply with the disclosure rules. However, if the qualifying resident foreign trustee fails to comply with the new disclosure rules it will be subject to the usual penalties, but will never be liable for tax on the worldwide income of the trust.
Information provided to the IRD by a trustee will be subject to the existing New Zealand tax secrecy laws. Section 81 of the Tax Administration Act prevents the IRD from providing information to a foreign jurisdiction except as permitted by section 88, ie, under a reciprocal law or double tax agreement.
Except in the case of foreign trusts settled by residents of Australia, the information required to be disclosed to the IRD is minimal. In most instances, apart from details of the New Zealand resident trustee, the only information provided will be the name of the foreign trust or its date of settlement. Whilst the trustee has obligations to maintain records of the foreign trust, it does not have any obligation to fi le annual reports or tax returns with the IRD (unless the foreign trust derives New Zealand source income).
Lauren Williams, Senior Legal Counsel, Asiaciti Trust, New Zealand