Greenlion Provide More Information on Trusts

A new world has emerged for Trusts and Trustees alike with the plethora of legislation recently enacted. Both the Trusts Act 2019 and the Tax Administration Act 1994 have dictated Trustees become familiar with statutory duties and compliance obligations. One particular matter likely to require Trustees attention is that pertaining to beneficiary current accounts. This article explores the topic, and the associated issues Trustees should give consideration to. 

 In New Zealand it’s been fairly common practice for Trustees to resolve to make income distributions to beneficiaries. Those Trustee approved distributions however are more often than not, never paid out to the recipient beneficiary.  

 An amendment to the Income Tax Act 2007 has been made which states the Inland Revenue Department will deem beneficiaries who have current accounts of $25,000 or more to be settlors of a Trust where interest has not been paid at the prescribed rate (or higher) on the balance owed to the beneficiary. 

 Three issues arise as a consequence of the legislative enactment and the practice of Trustees resolving but not paying the said distributions to their recipient beneficiaries. 

The first is Trustees have never had to disclose to a party they are in fact a beneficiary of the Trust under their control. With the additional obligations of disclosure the Trusts Act 2019 now imposes upon Trustees however, disclosure of being a beneficiary is required.  

The second issue associated with beneficiary current accounts relates to the perspective the Inland Revenue Department may adopt. The Commissioner could question whether there has actually been a proper distribution of income to the beneficiary if the beneficiary current account has existed for many years. It’s likely this issue will be brought to the attention of the Commissioner when information is provided to the Inland Revenue Department as is now required under the recent amendments made to the Tax Administration Act 1994.  

 Finally, and possibly the most far reaching of the issues this matter raises, is that relating to a beneficiary being deemed a settlor of a trust. Where a person qualifies as a settlor of a trust through their beneficiary current account, unwelcomed tax implications may arise. These are just a few examples where negative tax consequences may be triggered. 

 Trustees would be well advised to discuss documentation needs with their Greenlion Advisor. For clients who do not have an independent trustee or those who simply wish to discuss their Trust’s affairs, contact the Trustee Services division at Greenlion. It can conduct a review of your Trust and provide you with recommendations to ensure you satisfy your Trustee duties and your Trust remains compliant, so with this in mind, please take a moment to find out more about financial consultancies and chartered accountants Auckland by visiting the website at https://www.greenlion.co.nz .