NEW ZEALAND: Trustees must now disclose financial position statements to tax authority.

As published on step.org/industry-news, Monday 14 March, 2022.

Last week, the New Zealand government made an Order in Council significantly increasing the disclosure requirements for taxable domestic trusts.

For income years ending on or after 31 March 2022, trustees must now submit a statement of profit or loss and a statement of financial position to the Inland Revenue Department (Inland Revenue). The statements will be used to assess trustees' compliance with the new 39 per cent top rate of personal income tax rate enacted in December 2020. They will also help the Inland Revenue monitor the use of structures and entities by trustees.

The order closely follows the draft rules issued for consultation in October 2022. In particular, it requires that statements use double-entry bookkeeping and valuation of assets and liabilities are at either market, cost or tax-adjusted value. Trustee reports must also declare the amount and nature of settlements received, settlor details, amounts and nature of distributions made, and the details of recipient beneficiaries and appointers.

A simplified reporting procedure can be used if the trustee reports less than AUD100,000 assessable income, less than AUD100,000 deductible expenditure and total assets of less than AUD5 million. However, the original plan to provide a general de minimis exception for small trusts seems to have been dropped.

Non-active trusts, foreign trusts, registered charitable trusts, Maori trusts, large pension trusts, employee share schemes and certain others are excluded from the new reporting rules. Trusts that do not derive assessable income, such as trusts set up to own holiday homes, are also exempt.

The new disclosure requirements will primarily affect about 55,000 domestic trusts that report assessable income to the Inland Revenue but do not currently report business income or file any financial statements.