New Disclosure Requirements for Trusts
In December 2020, the Government enacted a number of new disclosure requirements for domestic trusts which came into effect on 1 April 2022.
This followed the Government’s decision to increase the highest personal tax rate to 39%. The information disclosed through the new requirements enables the Government to gain an insight as to whether the use of trusts has increased in response to the 39% personal tax rate.
The new disclosure requirements will give the Government complete visibility over domestic trusts to monitor various risks and to understand how trust structures and entities are being used by trustees.
So - what are the new disclosure requirements?
All trusts that file annual income tax returns will also be required to file an annual trust return, in which the following information is now required:
1. Settlors details
Specifically, the name, date of birth and IRD number of the Settlor/s. The Settlor/s are the person/s who initially set up the Trust and transferred assets into it.
2. Settlement Details
The trust return must disclose any amounts that have been settled in the Trust during the income tax year. For the 2022 Trust return, all settlements made during the prior income tax years must also be disclosed.
3. Beneficiary details and distributions
A distribution made to a beneficiary must be disclosed alongside the relevant beneficiary’s name, date of birth and IRD number must also be disclosed. The details of distributions made must also be included as well as any change in beneficiary accounts.
4. Details of the Appointors of the Trust
An Appointor has the integral role of appointing and removing trustees under the powers of the Trust Deed. The details of an Appointor must be included in the Trust return – particularly their name, date of birth and IRD number.
5. Minimum Standards for Financial Statements
The new rules impose minimum standards on financial statements prepared by almost all trusts, for all income years starting with the 2022 tax year. Financial statements must be prepared using double-entry accounting and with additional disclosures, including the valuation methods used to value assets and liabilities as well as information about the dividends and interest received by the Trust. However, some very small trusts do not have to comply with these minimum standards and are able to use cash-basis accounting.
Scope and Application
The new requirements do not apply universally to all trusts. Various trusts are exempt from the rules, including charitable trusts, foreign trusts and non-active trusts.
If they have not already done so, trustees of a non-active trust should complete and file an IR 633 declaration. This removes the requirement for the non-active trust to complete an income tax return.
The rules apply from the 2021-2022 tax year.
If you are unsure about the new disclosure requirements and what they mean for your Trust, get in touch with our Trust Team today.
