Trust tax disclosure changes: What advisers need to know

The Trusts Act 2019 set new responsibilities for trustees – those obligations are about to increase again with the introduction of new tax disclosure requirements.

Wednesday, March 24th 2021, 6:00AM

by Daniel Smith

Andrew Ryan

At the start of this year the Trusts Act 2019 came into force, in the words of the Ministry of Justice, “widening the current level of responsibility” for trustees.

But now the levels of responsibility are set to increase further with the introduction of additional tax information disclosure requirements.

Taking effect from the 2021-22 income year, trustees will need to provide Inland Revenue (IRD) with additional financial and non-financial information relating to a trust and its activities.

These new rules are specifically intended to equip IRD with the information it needs to monitor compliance with the new 39% personal tax rate.

Andrew Ryan, partner at MinterEllisonRuddWatts says obligations to provide IRD with information relating to trusts have been “significantly expanded”.

“From the 2021-22 tax year, trusts will need to disclose to IRD financial information (in the form of a profit and loss statement, and statement of financial position) as well as details of any settlements made on the trust, and/or distributions made by the trust, in the income year.

“Persons connected with the trust will also need to be identified, including any settlor, beneficiary who has received a distribution in the income year, or person holding certain powers of appointment and removal.”

This is especially relevant for advisers whose clients' wealth is held in trust. Ryan explains that advisers need to make sure these clients put themselves in a “position to meet their new, stepped-up obligations”.

Ryan believes that these updates to tax disclosure will not be the end of changes to trust law.

“It is also worth noting that further changes are possible, and arguably should be expected, in this area. In particular, through the new disclosure rules, IRD will be assessing compliance with the new 39% personal tax rate.

“If it identifies that trusts are being used to reduce exposure to the 39% rate, IRD is likely to push for the trustee tax rate to be lifted to 39%. This is consistent with its preferred approach during consultation on the new rules.”

With the extra focus on the 39% tax bracket Ryan believes that “Advisers should caution their clients against overly structured arrangements that are geared towards circumventing the 39% tax rate, because such arrangements could attract allegations of tax avoidance from Inland Revenue.”

Trustee obligations to IRD from 2021-22:

● a statement of profit or loss and a statement of financial position for the trust
● the amount and nature of each settlement made on the trust in the income year
● the name, date of birth, jurisdiction of tax residence, tax file number and taxpayer identification number of each settlor who makes a settlement on the trust in the income year, or whose details have not been previously provided
● the name, date of birth, jurisdiction of tax residence, tax file number and taxpayer identification number of each person having a power under the trust to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trustee
● for each distribution made by the trustee of the trust in the income year –

the amount of the distribution
the name, date of birth, jurisdiction of tax residence, tax file number and taxpayer identification number of each person having power under the trust to appoint or dismiss a trustee, add or remove a beneficiary, or amend the trust deed
any other information required by the Commissioner.

For further information on the new trust tax disclosure obligations read more here.

Tags: Minter Ellison Rudd Watts tax trusts