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A New Zealand tax resident set up a trust in New Zealand and then left New Zealand permanently. Settlor’s children who still living in New Zealand are beneficiary of the trust. All trust income are distributed to beneficiaries. At what percentage the distribution will be taxed?

Once settlor ceases to be NZ tax resident, it will be non –complying trust, unless settlor, trustee or beneficiary elects (HC33) to pay New Zealand tax on New Zealand SourceIncome for that tax year and subsequent tax year.  Once election has been made a trust can retain its complying status. Beneficiary income is taxed on their residence irrespective of settlor or trustee residence, refer FC of T v Belford (1952) 10 ATD105; 88 CLR 589.  A complying trust will become foreign trust when it has a foreign sourced income.

 

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