IRD ramps up disclosure requirements for Domestic Trusts.

The Taxation (Income Tax and Other Amendments) Act 2020 heralded a totally unexpected increase in the requirements regarding information to be provided to the IRD on trusts. The Act’s main purpose was to increase the top marginal tax rate from 1 April 2021 to 39c for individuals earning more than $180,000.

However, snuck into the Bill and ultimately the Act were significant new requirements applying to the 2022 tax year on for trusts to provide far more information to the IRD on an annual basis, and retrospectively.

All trusts will basically need to provide the IRD with financial statements where they have assessable income. Moreover, the IRD requires details of not only settlements made on the trust going forward, but details of all settlors in the past. This will include names, IRD numbers and other appropriate information.
The good news is this does not stop there. The IRD will also require information on persons holding the power to appoint the trustees and likely the changes in beneficiaries in the trust. What the IRD is doing is requiring all trusts domestic or otherwise, to comply with the disclosure requirements that currently apply only to foreign trusts. The IRD has built a new portal for this as part of phase 4 of regeneration of its accounting system.

For accountants this is going to be a significant requirement as not only is it prospective filing, past settlements and settlor details need to be disclosed as well. Exactly how that will be done remains to be seen.

Accountants will need to gather significant information and while this does not apply until the 2022 year, it would be our expectation that this would be done as part of the new disclosure provisions to beneficiaries under the Trusts Act 2019. You might as well start gathering this information now in one hit rather than having a wave of disclosure of beneficiaries in the 2021 year and then a further wave of further disclosures to the IRD in the 2022 year. Certainly, accountants are going to need to be far more detailed and determined in their discussions with their clients around the obtaining of information as in some cases they may not know about changes to persons with powers to appoint or in some cases even settlements. Remember that settlements for income tax purposes are far more extensive than those under trust law.

The interesting question is what will the IRD do with all this extra information. That remains to be seen. Given that it has it already supposedly in an international environment under the Foreign Trusts Regime, one can only imagine what they intend to do with it domestically. Add to the fact that trusts now must have an IRD number where they own land, Big Brother is certainly watching you and will have far more information at its fingertips.

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