Changes to Trusts’ reporting requirements under new Tax Act

The change in the top income tax rate for individuals earning more than $180,000 to 39% has received the main publicity and attention in the ratification and royal assent for the Taxation (Income Tax Rate and Other Amendments) Act 2020.

Another change is included in the Act that will also affect Trusts, beginning with the 2021 tax year. The Act will require additional reporting to be included in a tax return lodged by a trust. Although trading trusts are required to report their activity (as are other trading businesses)in an IR10 schedule, the Act will now require other trust activities to be reported.

From the 2021-2022 year, trusts will now have to report on their income, distributions, settlements and financial position.

Financial reporting information required will include

•             profit and loss statements

•             balance sheet items, and

•             other information to be specified by the Commissioner (for example any transfers to the trust by associated persons)

For distributions, the information required would include identifying information for beneficiaries such as their name, IRD number and date of birth. The information required for distributions is similar to the information Inland Revenue collects where there is an allocation of income to the beneficiary.

The information required for settlements (amounts put into a trust) over the year would include identifying information for settlors such as name, IRD number and date of birth, as well as the amount and nature of each settlement. The Act will also require historical data about previous year settlements when that information has not previously been reported to the Commissioner. In addition, the Act will require trustees to provide information on those with the power under the trust to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed.

The Financial Positon will be provided via a report on the trust’s assets and liabilities.

The Act also allows for the Commissioner to obtain the above information for prior years, back for seven years, but only if the requested information is within the knowledge, possession or control of the trustee.

How this information will be presented has not yet been advised, but the return of income and the information required under the Act for a trustee and a tax year must be in the form prescribed by the Commissioner. This has not yet been developed but will need to be in place for the tax year.

If you have any questions or concerns relating to these changes, please get in touch with us.

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