New Trust Reporting Rules Explained

Increased disclosures for Trust Income from Financial year 2022

Introduction

With the introduction of the new personal tax rate of 39% for income earned by individuals above $180,000, a new need has arisen for increased disclosure for trusts to enable the Commissioner of Inland Revenue to understand and monitor the use of trusts by trustees.

The order made in March 2022 sets a minimum standard of disclosure in the financial statements for trusts from financial year 2022.

Exclusion of certain trusts

Certain trusts are excluded from the requirements, including –

• Non active trusts
• Foreign trusts
• Trusts incorporated under Charitable Trust Act 1957
• Trusts eligible to be Maori authorities
• and a few other trusts as listed in the order

Simplified Trust Tax Return reporting

A trust may be eligible for simplified reporting if –

• assessable income and expenditure are less than $100,000 (not including residential property brightline test gains and related expenditure), and
• total assets at balance sheet date are less than $5 million.

Requirements for simplified Trust Tax Return reporting

The trustees are now required to file the profit & loss and financial position statements. The accounts must be prepared using the double entry bookkeeping system as well as relevant valuation principles.

Also, some of the below information would be required in the tax return –

• Amount and nature of settlements
• Details of Settlor
• Distributions and beneficiaries
• Details of appointer

If the trust does not derive business income, the statements can be prepared for a non-standard balance sheet date (year ended 31-March).

Valuation of assets may be done at market value or cost, and if related to an asset that generates assessable income, a tax adjusted value may be used.

 Additional requirements for trusts that do not qualify for simplified reporting

• Use accrual accounting
• Include statement of accounting policies and comparatives versus previous year
• Fixed asset schedule
• Details of transactions between trusts and associated persons, including disclosure of transactions not performed at market value.

If you require assistance with reporting for trusts you are associated with, please reach out to us.

The above article does not constitute tax advice and only encompasses general information, please reach out to us for specific advice in relation to your situation.

*The above article is a high-level explanation of the methods of calculation, and there may be other technicalities/rules that are applicable. The complexity of the calculations can also vary. Please reach out to us if you have specific questions regarding your situation.

Please note that the above does not constitute specific tax advice and only intends to be a general advice. If you require specific advice related to your situation, please reach out to our tax consultant using the ‘contact us’ option.

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