6 minute read
PONSONBY PROFESSIONALS
PONSONBY PROFESSIONALS LOGAN GRANGER: NEW DISCLOSURE RULES FOR TRUSTS
As some readers may be aware, in December 2020 the government enacted new disclosure requirements for domestic trusts, effective from the 2022 tax year onwards.
The purpose of this is so the government can gain insight into the effectiveness of the new highest individual tax rate, being 39% for individuals who earn $180,000 or more. As well as this, it will enable the government to better understand and monitor the use of structures and entities by trustees.
Currently, income retained in a trust is taxed at 33%, with no further income tax imposed if this income is subsequently distributed to a beneficiary who might be on the new highest marginal tax rate of 39%.
Under these new disclosure rules, Inland Revenue will have complete visibility over how trusts are being used to fund annual capital distributions from income taxed at the lower trust tax rate. The government will be using this information collected to decide on whether the trustee tax rate should also be increased to 39%.
What are the implications of these new requirements? For most trusts, there is now a legislative requirement to prepare financial statements for tax purposes to a minimum standard. It is also necessary to disclose a lot of detailed information about settlements, settlors, and distributions to Inland Revenue as part of filing the annual trust tax return.
It sounds simple in theory, but there is no doubt these measures will increase compliance costs for most trusts. We note in the regulatory impact statement, officials admit they “have limited understanding of the compliance costs that trusts will face with the increased disclosure requirements and how large the costs will be”.
After a period of public consultation there has been some improvements to the minimum financial statement proposals, but in our view this does not significantly reduce the amount of information that all trusts need to disclose when filing their tax returns. Currently, we are still waiting for Inland Revenue to release its final operational guidance on how to apply the rules.
Is your trust excluded from the new rules? First, it is important to note that not all trusts are caught by these rules. Trustees should first check if they qualify to be excluded from these rules as this will save considerably angst. The largest category that will be exempt are non-active trusts.
Logan Granger, Ponsonby Office
Typically trusts holding the family home, with no income and expenditure will be considered non-active. All trustees in this situation should review whether their trust is non-active and speak to their accounting advisor about filing an IR633 (nonactive) declaration if not already done.
The other trusts that are excluded from these rules include foreign trusts, charitable trusts, trusts that choose to be a Maori Authority, trusts that are widely held superannuation funds and lines trusts.
Filing the trust tax return and making disclosures.
The next task for trustees is to file various disclosures of all settlements, settlors, distributions, and those with the power of appointment via the IR6 and IR6B forms, which we understand have been redesigned to collect all the new information now required.
Unfortunately, at the time of writing this article, the final guidance on the specific information required has not been released. However, what we do know is that accountants will be asking for a lot more information from their trustee clients this year! (LOGAN GRANGER) PN
Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this article; always see your professional advisor before taking any action that you are unsure about.
JOHNSTON ASSOCIATES, 14 St Marys Bay Road, T: 09 361 6701, www.jacal.co.nz
14 St Marys Bay Road, St Marys Bay
Kia ora koutou. We are excited to be back in business in our offices in the Grey Lynn Community Centre in Richmond Road.
Our volunteers have been working remotely since the August 2021 lockdown and are very happy to be back. Full face to face service started this month, including most of our specialist clinics - Justices of the Peace, family law and budgeting.
Our opening hours are still a little flexible, so give us a call first to see when we are open. At present we require a vaccination pass to come into CAB but we do have ways to assist if you are not vaccinated.
I would like to introduce myself as the new manager of the Grey Lynn/Ponsonby Branch. My name is Lucette Hindin and I have transferred from Ōrākei-Remuera branch of CAB where I worked for two years. This branch is closer to my home in Morningside and I am enjoying the walk over and getting to know the West Lynn area.
My background is quite diverse, including work in theatre, adult education, libraries, events, community development, and most recently, managing a retreat centre. Alongside my part time role at CAB, I make and sell meditation cushions and embroidery art.
I was interested to read in the April issue of Ponsonby News the focus on the growth of apartment options in the central suburbs. It is certainly a big change in the way many people are living and it does bring up some issues.
I noted the comment from a property management company executive that when buying an apartment it is essential to get specialist legal advice. This, she said, is because of the additional obligations that come with apartment, or “unit title” ownership. As an owner you become a member of the “body corporate” and subject to the body corporate rules.
We often take calls from people who are part of a body corporate or cross lease and have never seen the relevant documents, so it’s hard for them to work out their rights and their responsibilities in their apartment block, especially when conflicts arise. I would encourage you to have a look at our website: www.cab.org.nz.
We have a lot of articles and information. If you type in “What is a body corporate”, you will come up with this link - www.cab.org.nz/article/KB00000884 and it will give you a plain English explanation and many links to other information and trusted websites to find out more about unit titles.
Lucette Hindin
If you are renting an apartment, you are also subject to the body corporate rules. We advise tenants to ask their landlord to supply a copy of the rules, as they may be unaware of how those affect their enjoyment of the property.
Where tenants and landlords have a dispute, they can, after trying to work it through together, apply to the Tenancy Tribunal. This is a reasonably straightforward and low cost option for tenants, with mediation involved. We, at CAB, can support anyone who has tenancy issues to try and resolve these.
In most cases, disputes are caused by a mistake or misunderstanding or by one party not knowing the law. We can help you understand what your rights are. From there, we help you work out your options to resolve the dispute.
Whāia te iti kahurangi ki te tūohu koe me he maunga teitei. Seek the treasure you value most dearly: if you bow your head, let it be to a lofty mountain. (LUCETTE HINDIN, Manager Citizens Advice Bureau, Grey Lynn/Ponsonby Branch) PN
CITIZENS ADVICE BUREAU, 510 Richmond Road, T: 09 376 0392, E: ponsonby@cab.org.nz
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