Changes to Trust Disclosures

Starting from the 2022 income tax year, some trusts are now required to provide more details with their income tax return in accordance with the disclosure regulations for domestic trusts.

Trusts that do not need to comply

If a trust does not generate assessable income, it is exempt from adhering to reporting obligations, even if it opts to submit an income tax return.

Given that estates are distinct from trusts, they are not obligated to fulfil reporting requirements. However, if an estate evolves to a stage where assets are managed under a trust, the trust will need to adhere to the updated reporting requirements, unless it falls under specific categories of trusts or does not generate assessable income.

Other trusts that do not need to comply with the new disclosure requirements include:

  • trusts that have made a non-active declaration

  • foreign trusts

  • charities

  • trusts eligible to become Māori Authorities

  • widely-held superannuation funds

  • exempt employee share schemes

  • debt funding special purpose vehicles

  • energy lines trusts.

What are the additional reporting requirements?

You need to give the IRD information about the trust's financial situation and the people involved in the trust.

These requirements apply to tax returns for the 2021-2022 and later income years.

Financial Statements

The IR6 tax return now includes requests for additional details regarding the financial performance and standing of the trust. This encompasses:

  1. Net profit or loss before tax.

  2. Assets, such as land, buildings, and shares, along with the method used for asset valuation.

  3. Liabilities, including loans and any amounts owed to creditors.

  4. Equity, signifying assets available to trustees after accounting for liabilities.

If the trust typically files an IR3R (rental income), IR3F (farming income), or IR10 (financial statement summary for business activities) form for specific activities, it should continue to do so. These forms are designed to capture transactions relevant to the particular activity.

The fields on the IR6 are designed to encompass all aspects of the trust's income, expenses, assets, and liabilities. This includes instances where assets are not utilised to generate assessable income. Consequently, for many trusts, the values reported on the IR6 may differ from those on their IR10 form.

Settlements

A settlement refers to any transfer of value from an individual or entity to a trust, where the transfer occurs for less than the market value. Provide the IRD with information about any settlements made to the trust, including:

  1. Details of the person or entity making the settlement (the settlor).

  2. The nature and amount of the settlement.

These particulars are recorded on the 'Trust settlor details' (IR6S) form.

For settlor details, include the settlor's name, date of birth (or commencement date for companies or other non-individuals), tax residency jurisdiction, and Inland Revenue Department (IRD) number or Taxpayer Identification Number (TIN) for non-residents.

You are required to provide details of any individual or entity that has ever served as a settlor for the trust, including historical settlors. However, information about the amount or nature of historical settlements is not necessary. For settlements made in the current year, provide details of the settlor along with the amount and nature of the settlement.

Settlement details are categorized into the following groups:

  1. Cash

  2. Financial arrangements

  3. Land

  4. Buildings

  5. Shares

  6. Services

  7. Other

Minor services that are incidental to the trust's activities do not require disclosure.

Regarding loans, providing a loan to a trust is not considered a transfer of value, and therefore, it does not constitute a settlement. However, if the loan is later forgiven, the forgiveness is regarded as a settlement. Additionally, if the lender does not charge interest on the loan, they also become a settlor.

Beneficiaries

A beneficiary refers to an individual or entity that has the potential to benefit or is already benefiting from a trust.

Trustees have the option to allocate beneficiary income or make distributions to beneficiaries. If an individual receives an allocation of beneficiary income or a distribution within the year, please fill out the 'Estate or trust beneficiary details' IR6B form. Identify the nature of the distribution using the following categories:

  1. Accounting income and any other amounts

  2. Corpus

  3. Capital

  4. Use of trust property at less than market value

  5. Distribution of trust assets

  6. Forgiveness of debt

In a separate section, record the transactions into and out of the beneficiary's account.

Minor and incidental non-cash distributions related to the trust's activities do not require disclosure. There is no obligation to disclose beneficiary details or distributions that occurred in the past; only those from the 2021-2022 year onward need to be reported.

A separate IR6B form is necessary for each beneficiary.

Power of Appointment

An individual or entity possessing a power of appointment holds the legal authority to add or remove trustees, include or exclude beneficiaries, and modify the terms stipulated in the trust deed.

Starting from the income year of 2021-2022 onwards, trusts are required to provide information about any person or entity with a power of appointment. The necessary details include:

  1. Full name

  2. Date of birth (or commencement date for companies or other non-individuals)

  3. Jurisdiction of tax residency

  4. IRD number/Taxpayer Identification Number (TIN)

  5. Commencement date (the date on which the person acquired the power of appointment)

  6. Cease date (the date on which the person no longer holds the power of appointment).

You can submit details regarding powers of appointment through your income tax account in myIR by selecting 'Manage power of appointment,' or alternatively, through paper submission via post.