It’s often said the only constant in life is change, and it’s certainly the case for Trusts. The new Trusts Act 2019, which came into force on 30 January 2021, was one of the biggest changes for Trusts for quite some time. Now, Inland Revenue has also introduced further reporting and disclosure requirements.
These new rules enable Inland Revenue to collect additional information - whether your Trust transactions are taxable or not. Non-active Trusts, Charities, Māori Authorities and Foreign Trusts already subject to the foreign trust disclosure regime will not be subject to these new requirements.
Increased disclosures in your IR6 annual income tax returns
If your Trust generates assessable income, the disclosure obligations in your IR6 return will increase from 1 April 2021 for the 2022 year, and subsequent income years. This includes a requirement to prepare a statement of profit or loss and a statement of financial position (balance sheet). In some cases, where financial statements have not been prepared historically, there will be a requirement to now do so.
Inland Revenue will also require further information to be disclosed when applicable, this includes:
- The amount and nature of settlements received; these do not need to be disclosed if they are minor services incidental to the activities of the trust and are provided to the trustee at less than market value
- Settlor details, including those of previous settlors if they haven’t been supplied previously to the Commissioner
- The amount and nature of distributions made
- Details of beneficiaries who received capital and/or income distributions
- Details of people who have the power to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed
This is only a summary of the key information Inland Revenue will require under the new disclosure rules, and not a comprehensive list. Further information can be found on IRD’s website.
For some Trusts, it may be appropriate to file a non-active trust declaration, as the disclosures are not required. For example, if your Trust only owns the family home, a non-active trust declaration can be filed.