Foreign Trusts In New Zealand - Reporting And Record Keeping Requirements

A New Zealand resident trustee of a Foreign Trust (see article Tax Treatment Of Your Trust On Migration To New Zealand) is required to disclose certain information to the New Zealand Inland Revenue Department ("IRD") and to keep financial and other records relating to the Trust for New Zealand tax purposes in accordance with the Taxation Administration Act 1994.

Purpose
These requirements were introduced in 2006. We understand the Government’s aim was to ensure New Zealand meets its international commitments to other tax jurisdictions for full disclosure of information.

Before 2006, provided a Foreign Trust set up in New Zealand received only foreign-sourced income, it was not taxed in New Zealand and did not have to file New Zealand income tax returns or keep records.

Under New Zealand’s double tax agreements, the IRD may be asked by foreign tax authorities for information on Foreign Trusts operating in New Zealand. We understand the Government was concerned that without enforcing these reporting/record keeping requirements, the IRD would not be able to provide such information.

IRD Information
The following information must be disclosed to the IRD:

2. The name and contact details of the New Zealand resident trustees;

3. Whether a settlor is an Australian resident; and

4. If any one of the trustees claims to be a "qualifying resident foreign trustee" ("Qualifying Trustee"):

• the name of the approved organisation of which the trustee is a member; or

• if the trustee is not a natural person, the name and contact details of the director or other officer who is a member of an approved organisation.

 

New Zealand resident trustees appointed after 1 October 2006 have only 30 days to make the required disclosures. New Zealand trustees appointed before 1 October 2006 have 60 days. Any change in information disclosed must be notified to the IRD within 30 days of the trustee(s) becoming aware of such change.

 

A trustee who is a natural person, was appointed before becoming a New Zealand resident, becomes a New Zealand resident after 1 October 2006, and has not been a New Zealand resident in the 5 years before becoming a New Zealand resident, has a further 2 years to disclose.

Qualifying Trustees
If there is an existing New Zealand resident company that is the sole trustee of a Foreign Trust, at least one of the directors of that corporate trustee should be a member of an organisation specifically approved by the IRD. Examples of approved organisations include the New Zealand Law Society or the Institute of Chartered Accountants, whose members are subject to a professional code of conduct and who typically provide trustee services in the course of their business. The trustee company will then be treated as a Qualifying Trustee and income tax will only ever be payable in New Zealand on the Trust's New Zealand-sourced income (and not its foreign-sourced income (if any)).

Trust Records
The following records must also be kept to ascertain the Trust's financial position:

2. Particulars of all settlements and distributions, including the date of the settlement or distribution and the name and address of the settlor or recipient; and

3. A record of:

Penalties for Non-Compliance
If a New Zealand resident trustee knowingly does not comply with these requirements, the IRD may prosecute the trustee. If convicted, the trustee may be subject to a monetary fine up to $50,000 and/or imprisonment.

The worldwide income of the Trust may also be subject to New Zealand income tax until the information is provided to the IRD, unless the New Zealand resident trustee is a Qualifying Trustee, in which case only the trustee may be penalised for non-compliance.

For further information, please contact Tony Fortune, Katherine McCarthy, or Lauren Corbett.

August 2011