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2021 Trust Changes

Updated: Dec 13, 2021

2021 Trust Changes Know




Inland revenue has made some proposals for the minimum reporting requirements that they will require this year.

In prior years trusts have filed returns declaring taxable income including distributions to beneficiaries that are subject to NZ tax, but they have not been required to file financial statements, nor provide details of transactions which are not subject to tax.

This is to change from the 2022 tax year (from 1 April 2021 in most cases) and later income years, with trusts being required to prepare IRD minimum standard reporting and significant other disclosures.

Their Requirements Include:

  • The Financial Statements should be based on the double-entry method of recording financial transactions and the principles of accrual accounting.

  • The statements should include a statement of accounting policies and changes.

  • Amounts may be disclosed using tax values, historical cost, or market values at the discretion of the preparer of the statements.

  • The statements should include a reconciliation between the profit and loss in the financial statements to the taxable income and movements from opening balances to closing balances on a line-by-line basis of all the:

    • beneficiary accounts

    • settlors accounts

    • movement in equity

    • loans and liabilities

    • property, plant and equipment.

  • Any transactions involving associated persons unless they are a minor.

  • There will be an exception for small trusts if the trustee has not derived annual income in excess of $30,000, or annual expenditure in excess of $30,000 during the income year and the trust total assets do not exceed $2,000,000 within the income year. This is the de minimis exception proposed.

This provides a large increase in compliance for trusts in that a lot of this information is not always readily available. Trustees should be starting to think about how to collect this information now if they don’t have it readily available.

If a trust does not derive assessable income, it is not required to file a return and the disclosure requirements do not apply. This includes, for example, trusts that own holiday homes and derive no assessable income. An IR633 Non-Active trust declaration would need to be filed with the IRD.

Our Recommendations Are:

  • Obtain details from us of the reporting required for the 2022 year as soon as possible.

  • Get our opinion on what that will look like to the IRD.

  • Keeping good trust and financial records and ensure that the trustees’ decisions are documented clearly.

  • Be very aware of making any trustee decisions that are just for the purpose of minimising tax – this could be called tax avoidance.

Update written by:

Manoj Vagh BCom CA PP



Some of the key changes are a significant departure from the previous law.

The Act replaces the Trustee Act 1956 and aims to clarify and modernise the law relating to trusts.

The new Act’s most important change is it sets out clearly that a beneficiary of a trust should be aware of their role – many New Zealanders may be unaware they are beneficiaries of a trust.

The new Act has clearer definitions of trustee roles and responsibilities. These are now set out as part of the law.

The amount of documentation trustees are required to distribute and hold is increased.

There is a presumption that a trustee must make available to every beneficiary or representative of a beneficiary the basic trust information. This includes: the fact that a person is a beneficiary; the name and contact details of the trustee; the details of each appointment, removal, and retirement of a trustee as it occurs; and each beneficiary’s right to request a copy of the terms of the trust or trust information.

Features such as mandatory trustee duties, record keeping, and disclosure of information will increase trustee responsibility and require trustees to have a more active role in the trust.

If you are a Trustee, then your duties under the new act will be as follows:


  1. Know the terms of the trust.

  2. Act in accordance with the terms of the trust.

  3. Act honestly and in good faith.

  4. Act for the benefit of beneficiaries or to further the permitted purpose of the trust.

  5. Exercise powers for proper purpose.


  1. General duty of care.

  2. Invest prudently.

  3. Not to exercise powers for their own benefit.

  4. Consider exercise of power.

  5. Not to bind or commit trustees to future exercise of discretion.

  6. Avoid conflict of interest.

  7. Duty to be impartial.

  8. Duty not to profit.

  9. Trustee must act for no reward.

  10. Trustees must act unanimously.

The legal changes do not change many of the reasons that our clients have trusts and we still recommend them for the following reasons:

  • We like trusts for their Asset Protection benefits – these have been demonstrated very clearly as COVID has upset many business’s plans and contractual arrangements.

  • As accountants we love the opportunities to distribute income to a range of beneficiaries without the fixed structure required in a company with its shareholding.

  • And Trusts provide an excellent vehicle for estate planning and preserving wealth for future generations.

Now would be a good time to review your trust deeds to identify what variations might be required (remember that not all trust deeds will contain powers of amendment).

You need to identify the beneficiaries and consider removing those who are not intended to benefit from the trust (if there is a power of removal).

And you should also consider how and who will hold the core trust documents.

If you have a trust, you should communicate with the trustees about their disclosure obligations, and the implications of the mandatory and default duties.

If you don’t actively use your trust you may wish to consider whether the trust is still required.



With the move to the 39% tax rate for individuals, the IRD is going to be taking a more detailed look at transactions between individuals and trusts. This includes new disclosure rules designed to ensure the Inland Revenue has clear visibility over such transactions whether they are taxable or not.

In prior years trusts have filed returns declaring taxable income including distributions to beneficiaries that are subject to NZ tax but they have not been required to file financial statements, nor provide details of transactions which are not subject to tax.

This is to change from the 2022 tax year (from 1 April 2021 in most cases) with trusts being required to prepare IRD minimum standard financial statements and to make significant other disclosures.

These include:

  • Details of all settlements on the trust which includes all transfers of value along with full details identifying those entities or individuals making the settlements. Transfers of value include all things monetary and non-monetary other than the value of minor services provided at less than market value.

  • Details of all distributions (whether taxable or not; monetary or non-monetary) including details identifying the recipients.

  • Details identifying those who have the power to appoint or dismiss a trustee, add or remove a beneficiary, or to amend the trust deed.

  • Any other information required by the Commissioner.

The Inland Revenue will be looking at the ways in which individuals benefit from trusts other than through taxable beneficiary distributions.

The Minister of Revenue has stated that if they see a systemic use of trusts to fund annual income by way of capital distributions from income taxed at the lower trust tax rate of 33%, serious consideration will be given to raising the trustee tax rate to 39% to match individuals (noting though that this will likely apply to the first dollar of income).

The consequence of trusts having a higher tax rate in the future has material implications to the way trusts have typically been used for asset planning and creditor protection.

The information will be available for sharing under International Exchange of Information Agreements with foreign tax authorities. Often non-taxable transactions have flown under the radar and trustees may have had interest free loans or capital transactions with foreign beneficiaries that have not been taxed in their country of residence and for which little thought has been given. All trustees and beneficiaries should expect this information to be freely available to the foreign tax authority as the identifying details of beneficiaries will include their tax residence and tax file numbers. There is increased interest in this worldwide and you can expect revenue authorities to be keen to review this information and identify those who may have tax exposures in their country of tax residence.

Another area that may have also not been so visible previously is capital transactions with beneficiaries.

These may also become more visible to the Ministry of Social Development. A little-known requirement for recipients of income tested benefits is that additional income for testing purposes includes non-taxable distributions as well as taxable distributions. This information has not previously been available but given there is an agreement for information sharing between MSD and IRD, this will likely become more visible in the future.

Where Inland Revenue reviews the 2022 Trust Tax Return filed and finds something of concern, they have the right to request the same information for the previous eight years.


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