IRD Disclosure

Reminder: There are Increased IRD disclosure requirements for trusts in 2022 income tax returns

As Trustees you should be aware that the 2022 income tax returns for trusts will see both an ongoing significant increase in information required to be filed with the IRD about trusts, plus a significant catch-up as the IRD seeks to collect a lot of initial information. This will add both a lot of hassle/time to the preparation of especially the 2022 IR6 income tax return and add significant one-off and then ongoing cost.

With its new computer system, the IRD is clearly going to be much more able to use this information to aggregate entities and taxpayers when auditing or looking at who to select for audit. 

The additional disclosures required for trust in the IR6 are:

• A statement of profit and a balance sheet.
• The amount and nature of all settlements made to the trust in the income year which will include interest-free loans and not just cash gifts or forgiveness of debts.
• The name, date of birth, the jurisdiction of tax residence, and tax file number/taxpayer identification number of all settlors who have made a settlement on the trust in the income year, or settlors whose details have not previously been supplied to Inland Revenue.
• The name, date of birth, country of tax residence, and tax file number/taxpayer identification number, of all beneficiaries receiving such a distribution.
• The name, date of birth, country of tax residence, and tax file number/taxpayer identification number, of each person have a power of appointment under the trust deed (including the power to appoint or dismiss a trustee, add, or remove a beneficiary, or amend the trust deed). In addition, from 31 March 2022 most trusts will also have to prepare financial statements. Unless a trust is a non-active complying trust with no income or income of $200 or less in interest, it will have to prepare financial statements. While these financial statements are not filed with the IR6, they must be available if Inland Revenue requests to see them. We note that these financial statements are also required to be prepared under the Trusts Act 2019.

All trusts required to file a tax return must prepare financial statements to a minimum standard that includes:

• A balance sheet (showing assets and liabilities of the trust using one or more of 3 specified valuation methods, and state which type is used).
• A statement of profit and loss (showing income derived and expenditure incurred).
• Using the double-entry method of recording transactions; and
• Disclose the type of valuation principle adopted for shares/ownership interests, land, and buildings.

In addition to the above requirements, the financial statements for trusts that are not simplified reporting trusts must:

• Be prepared applying the principles of accrual accounting.
• Include a statement of accounting policies.
• Disclose comparable figures for the previous income year to the extent that the trustee has that information.
• Include a reconciliation between the profit or loss in the statement of profit or loss to taxable income.
• Include an appropriately detailed schedule of the trust’s fixed assets and depreciable property used for tax purposes; and
• Disclose details of any below market value transactions between a trustee and an associated person (aside from minor transactions incidental to the trust’s activities) including the person’s name, the nature of the association, the nature of the transaction and the amounts involved.

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