The Taxation (Income Tax Rate and Other Amendments) Bill, passed in December 2020, implemented additional disclosure regulations for domestic trusts starting from the 2021-22 income year. These changes aim to enhance the transparency of domestic trusts, enabling the Inland Revenue to evaluate compliance with the new 39% personal income tax rate and gain insights into the deployment of structures and entities by trustees.

The disclosure rules pertain to trustees of trusts that generate assessable income in a given tax year, excluding inactive, foreign, charitable trusts, employee share schemes, and widely held superannuation funds, among others. These rules necessitate trustees to prepare a statement of profit or loss and a statement of financial position.

The government has now established minimum standards for financial statements prepared by domestic trusts subject to these disclosure rules. These standards apply to income years ending on or after March 31, 2022.

Outlined below are the details of the information that must be provided in your annual return.

Reporting requirements:

Trustees are required to provide financial statements comprising:

A statement of financial position outlining the trust’s assets, liabilities, and net assets at the end of the return year.

A statement of profit or loss displaying the income generated and expenses incurred by the trust during the return year. This includes net profit or loss before tax, tax adjustments, and untaxed realized gains and receipts.

Starting from the 2022 tax year, additional information will be required concerning a trust’s earnings, settlements and settlors, beneficiaries and distributions, as well as persons with powers of appointment.

Trustees must provide:

Details of any person who has made a settlement on a trust, including the amount and nature of settlements made from April 1, 2021.

For settlors, provide full name, date of birth or commencement date (for non-individuals), jurisdiction of tax residency, and IRD number or Tax Identification Number (for non-NZ residents).

Additionally, provide details of settlements made during the year, such as cash, financial arrangements, land, buildings, shares/ownership interests, services, zero-valued settlements, and others (with a description).

Details of any person who has received a distribution from a trust, along with the distribution amount.

For beneficiaries, provide full name, date of birth or commencement date (for non-individuals), jurisdiction of tax residency, and IRD number or Tax Identification Number.

Also, include information about movements in beneficiary accounts, including opening balance, distributions (accounting income, corpus, capital, use of trust property below market value, distribution of trust assets, and debt forgiveness), amounts withdrawn or enjoyed, and closing balance.

Details of individuals with the authority to appoint or dismiss a trustee, add or remove a beneficiary, or modify the trust deed.

When adding a person with the power of appointment, provide their full name, date of birth, commencement date (for non-individuals), jurisdiction of tax residency, and IRD number or Tax Identification Number (for non-NZ residents).

Please note that persons with the power of appointment cannot be added or edited while filing the income tax return, but they can be added or updated at any time through myIR.

These new requirements substantially increase compliance obligations for domestic trusts. Trustees should begin considering how to collect all this information and have it ready.

BCA will be requesting more information when preparing trust accounts for the 2022 year and onwards.