Understanding New Zealand's Reporting Requirements for Domestic Trusts

The Inland Revenue's Operational Statement (OS 22/02), issued on April 6, 2022, explains the rules for reporting information about domestic trusts in New Zealand. These rules are important for trustees to follow under the Tax Administration Act 1994 (TAA), especially sections 59BA and 59BAB. This article breaks down the key points and responsibilities.

The Operational Statement helps trustees understand what information the Inland Revenue needs from domestic trusts. It aims to make trust operations more transparent and accountable, helping the Inland Revenue monitor and enforce tax compliance.

Obligations to File Returns for Domestic Trusts

According to section 59BA, trustees of domestic trusts must file annual returns. These returns should include:

A statement of profit or loss (income and expenses).
A statement of financial position (assets and liabilities).
Details of any settlements (contributions) and distributions (payments).
Information about the people who set up the trust (settlors) and the beneficiaries (those who benefit from the trust).

There are specific rules for different types of trusts:

Non-Active Complying Trusts: These trusts must declare to the Commissioner that they are non-active, meaning they do not have significant financial activity. They are exempt from detailed returns but must confirm their non-active status every year.
Bare Trusts: These trusts hold assets for beneficiaries without any decision-making power. They must also report, but their obligations are simpler.

Section 59BA: Annual Return Requirements for Domestic Trusts

Section 59BA(2) outlines what information must be included in the annual returns:

Statement of Profit or Loss: Trustees must report the trust’s income and expenses.
Statement of Financial Position: Trustees must detail the trust’s assets and liabilities.
Settlements: Trustees must disclose the amount and type of each contribution to the trust, whether cash or non-cash.
Settlor and Beneficiary Details: Trustees must provide complete information about all settlors and beneficiaries, including historical data and account movements.

Section 59BAB: Retrospective Collection of Information for Domestic Trusts

Section 59BAB allows the Commissioner to ask for information from previous years, starting after the 2013-14 income year and ending before the 2021-22 income year. This helps address any past non-compliance.

Key points include:

The Commissioner can request information for any specific period within these years.
Trustees must keep records for at least seven years, as required by section 22 of the TAA.
Non-resident trustees must ensure compliance through a New Zealand resident settlor.

Variations and Compliance for Domestic Trusts

The Commissioner can change the reporting requirements under section 59BA(5) to accommodate special circumstances of trustees or classes of trustees.

Practical Implications for Domestic Trusts

Trustees need to keep accurate records and report them correctly. This ensures that the Inland Revenue can enforce tax obligations. Failure to comply can lead to significant penalties, so understanding these requirements is crucial.

Conclusion for Domestic Trusts

The Operational Statement OS 22/02 provides a clear set of rules for reporting requirements of domestic trusts in New Zealand. Trustees must familiarize themselves with these obligations to remain compliant and avoid penalties. Following sections 59BA and 59BAB of the TAA 1994 will ensure transparency and accountability in trust operations.