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New Zealand's Disclosure Requirements



New Zealand disclosure requirements

Resident foreign trustees (including qualifying resident foreign trustees) are required to complete this disclosure for each foreign trust they administer using form IR607.

To complete this form you will need to know:


  • The full name of the foreign trust - or other identifying particulars
  • Trustee details
  • Settlor details
  • Who has been appointed as an agent for the purposes of making disclosures and keeping records.


A qualifying resident foreign trustee is:

  • an individual who is a member of an approved organisation, or
  • an entity that has a director or other individual who is resident in New Zealand and is a member of an approved organisation who is in a position allowing significant influence over the management or administration of the trustee.


 

 

Organisations that have been granted approved organisation status are:

  • New Zealand Institute of Chartered Accountants
  • New Zealand Law Society
  • The Society of Trust and Estate Practitioners (New Zealand Branch)


Ross Holmes and our professional team are members of both the New Zealand Law Society and/or the STEP (Society of Trust and Estate Practitioners) (New Zealand Branch).


Full details of these new rules are in the Tax Information Bulletin Vol 18, No 5 (June 2006) Tax Information Bulletin Vol 18, No 5 (June 2006)


Protection of Confidential Information

Principle 5 of the Privacy Act 1993 (New Zealand) requires us to ensure:

(i) Loss; and
(ii) Access, use, modification, or disclosure, except with the authority of the agency that holds the information; and
(iii) Other misuse; and
(a) That the information is protected, by such security safeguards as it is reasonable in the circumstances to take, against: (b) That if it is necessary for the information to be given to a person in connection with the provision of a service to the agency, everything reasonably within the power of the agency is done to prevent unauthorised use or unauthorised disclosure of the information.


The confidential information which New Zealand Offshore Trusts Limited require you to disclose as to the source and beneficial ownership of funds, is required to comply with New Zealand law and our due diligence requirements. All confidential information which is supplied to us is held by us in secure custody.


Tax Treaties and Information Exchange

Under section 16 of the Taxation Administration Act the Commissioner of Inland Revenue:


"may access premises to obtain information (1) Notwithstanding anything in any other Act, the Commissioner or any officer of the Department authorised by the Commissioner in that behalf shall at all times have full and free access to all lands, buildings, and places, and to all books and documents, whether in the custody or under the control of a public officer or a body corporate or any other person whatever, for the purpose of inspecting any books and documents and any property, process, or matter which the Commissioner or officer considers necessary or relevant for the purpose of collecting any tax or duty under any of the Inland Revenue Acts or for the purpose of carrying out any other function lawfully conferred on the Commissioner, or considers likely to provide any information otherwise required for the purposes of any of those Acts or any of those functions, and may, without fee or reward, make extracts from or copies of any such books or documents."


 

 

 

 

 

 

 

 

If the New Zealand offshore trust is not a New Zealand taxpayer the New Zealand Commissioner of Inland Revenue can only access information concerning a New Zealand offshore trust if that access is authorised by the terms of a double Taxation treaty.


Most tax treaties contain procedures allowing access to tax information. A detailed examination of the Taxation Solutions treaty is necessary to establish the extent of these powers.


Disclosure and recordkeeping rules for foreign trusts

Sections HD26(2)-(4) of the Income Tax Act 2007, sections 3(1), 22(2)(fb) and (m), 22(2C), 22(7)(d), 59B, 61(1B), 81(4)(mb), 143(1B), 143(IC), 147(2B) and 147B of the Tax Administration Act 1994


A New Zealand-resident trustee of a foreign trust (referred to as a "resident foreign trustee") is required to disclose certain information to Inland Revenue and keep financial and other records relating to each foreign trust for New Zealand tax purposes. They are also obliged to provide these records to Inland Revenue, if requested.


Failure to comply with these requirements may result in a resident foreign trustee being subject to sanctions, such as prosecution for knowingly failing to disclose or keep the required information. In certain circumstances, the resident foreign trustee may be taxed in New Zealand on the foreign trust's worldwide income.


All section references in this item are to the Tax Administration Act 1994, unless otherwise stated.


Background

The rules enable New Zealand to meet its exchange of information obligations with its double tax rules will also ensure that New Zealand is better placed to meet its informational obligations as a member of the international community and organisations such as the Organisation for Economic Co-operation and Development (OECD).


A foreign trust is a trust that is not a unit trust and on each date on which a distribution is made from it, no settlor of it has been resident in New Zealand since the later of 17 December 1987 or the date that the first settlement was made under the terms of the trust.


Key features

The rules for resident foreign trustees are contained in the Tax Administration Act 1994 and in sections HD26(2)-(4) of the Income Tax Act 2004.

  • Section 59B requires that resident foreign trustees must disclose specified information relating to the foreign trust to Inland Revenue, including the name or other identifying particulars of the foreign trust; the name and contact details of the resident foreign trustees and whether a settlor is resident in Australia. If a resident foreign trustee claims to be a "qualifying resident foreign trustee", the name of the "approved organisation" and the name and contact details of the individuals who belong to the approved organisation must be disclosed. If a resident foreign trustee has been appointed to make the required disclosure and keep records, the name of that trustee and the names of the appointing trustees; any changes in this information. Sections 22(2)(fb) and (m), 22(2C) and 22(7)(d) require resident foreign trustees to maintain certain financial and other records in New Zealand for at least seven years after the end of the income year to which they relate. These records should enable the financial position of the foreign trust to be determined.
  • The records required to be maintained must be provided to Inland Revenue, if requested. Such requests may be made periodically in respect of foreign trusts that have an Australian-resident settlor, and on a case-by-case basis if a valid request for information is received from another country with which New Zealand has a DTA.
  • Sections 143(1B), 143 (1C) and section 143A enable sanctions to apply to resident foreign trustees that knowingly fail to comply with the disclosure and record-keeping requirements.
  • Sections 147(2B) and 147B enable sanctions to apply to the directors or other individuals holding positions of influence over the affairs of a corporate trustee if the trustee has knowingly failed to comply with the new rules.
  • Sections HD26(2)-(4) of the Income Tax Act 2007 provide that in certain circumstances, resident foreign trustees (other than "qualifying resident foreign trustees") may be taxed in New Zealand on the worldwide income of the foreign trust, until such time as the requested information is provided. If a foreign trust has at least one qualifying resident foreign trustee, the income of that trust will never be subject to tax in New Zealand. These trusts will effectively enjoy a safe-harbour treatment.
  • Section 59B(3) provides that in certain cases, there will be a two-year moratorium in applying the new rules.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Detailed analysis

Definitions relating to foreign trusts (section 3(1))


Resident foreign trustees

The rules apply to resident foreign trustees only. A "resident foreign trustee" is a person who:

  • either alone or jointly with another person, acts as trustee of a foreign trust; and
  • is resident in New Zealand within the meaning of section YD1 or section YD2 of the Income Tax Act 2007.


 

A resident foreign trustee can be an individual or a corporate body. A trustee of a foreign trust that is registered as a charitable entity under the Charities Act 2005 is specifically excluded from the definition of "resident foreign trustee".


Qualifying resident foreign trustees

A "qualifying resident foreign trustee" is a resident foreign trustee which:

  • if an individual is a member of an approved organisation; or
  • has a director or other individual in a position allowing significant influence over the management or administration of the trustee, who is resident in New Zealand within the meaning of section YD1 of the Income Tax Act 2007 and is a member of an approved organisation.


 

 

 

Approved organisation

An "approved organisation" is an organisation whose members include individuals who are subject to a professional code of conduct and who are subject to a disciplinary process intended to enforce compliance with that code. Members of an approved organisation will typically provide trustee services in the course of their business activities.


In addition, the Commissioner has the discretion to consider other suitable criteria in approving an "approved organisation". Examples of other criteria the Commissioner may consider include:


  • whether the organisation's activities require its members to have certain qualifications; and
  • whether the organisation has a minimum number of members.


 

To ensure that resident foreign trustees know which organisations have been approved by the Commissioner, the names of these organisations will be published by Inland Revenue on its website and or in appropriate publications (section 81(4)(mb).


Disclosure of information to Inland Revenue

Section 59B requires all resident foreign trustees to provide specific information to Inland Revenue. However, if there is more than one resident foreign trustee, the resident foreign trustees may appoint one of themselves as an agent for the purpose of making the required disclosure.


Information to be disclosed

The specific information includes:

  • the name or other identifying particulars (such as the date of settlement) about the foreign trust;
  • the name and contact particulars of the resident foreign trustees;
  • whether a settlor is resident in Australia;
  • if a resident foreign trustee claims to be a qualifying resident foreign trustee, the name of the approved organisation and the name and contact particulars of the individuals who belong to the approved organisation;
  • if a resident foreign trustee has been appointed by another resident foreign trustee as an agent to make disclosure and keep records required by the new rules, the name of that trustee and the names of the appointing trustees; and
  • any changes in the particulars referred to above.


 

 

 

 

 

 

 

The collection of this information will assist Inland Revenue to identify the appropriate trustee(s) when information about a foreign trust is requested by one of New Zealand's DTA partners.


Inland Revenue will provide the Australian Taxation Office with information relating to foreign trusts that have a resident foreign trustee and an Australianresident settlor on a regular basis. The requirement to inform Inland Revenue if a settlor of a foreign trust is an Australian resident is intended to ensure that Inland Revenue is in a position to request and provide this information. Australia is the only country to which New Zealand is proposing to provide information on that basis.


Timing of disclosure

The specific information must be provided as follows:

  • Resident foreign trustees appointed on or after 1 October 2006 will be required to provide the specific information to Inland Revenue 30 days after the later of the date of the person's appointment as a trustee or the date of the person's arrival in New Zealand.
  • Resident foreign trustees appointed before 1 October 2006 will be required to provide the specified information to Inland Revenue 60 days after the later of 1 October 2006 or the date of the person's arrival in New Zealand.


Therefore, in each case a disclosure will not be required until after the resident foreign trustee has arrived in New Zealand.


Keeping of financial and other records

Sections 22(2)(fb) and (m) impose an obligation on resident foreign trustees to maintain certain financial and other records in New Zealand for at least seven years after the end of the income year to which they relate.


If there is more than one resident foreign trustee the resident foreign trustees may appoint one of themselves as an agent for the purpose of keeping the records required by the new rules.


Meaning of "records"

The definition of "records" in section 22(7) require resident foreign trustees of foreign trusts to keep and retain the following records:

  • documents that provide evidence of the creation and constitution of the foreign trust (trust deed or similar);
  • particulars of settlements made on, and distributions made by, the foreign trust, including the date of settlement or distribution, the name and address (if known) of settlors and recipients of distributions;
  • a record of the assets and liabilities of the foreign trust, and details of all sums of money received and expended by the trustee in relation to the foreign trust, including evidence of when and where the receipt and expenditure takes place; and
  • if the foreign trust carries on a business, the charts and codes of accounts, the accounting instruction manuals and the system and programme documentation which describes the accounting system used in each income year in the administration of the trust.


 

 

 

 

 

 

 

Differential record-keeping requirements

The records outlined above are required to be kept by all resident foreign trustees of foreign trusts that are in business.


Foreign trusts that are not in business are excluded from the requirement to keep information relating to their accounting information system. However, the records relating to the assets and liabilities of the foreign trust and the details of all sums of money received and expended by the trustee relating to the trust are required to be kept and retained. This more limited record-keeping is intended to reduce compliance costs for these trusts while ensuring that they maintain sufficient records to enable the financial position of the trust to be determined with reasonable accuracy.


Keeping of records offshore

Section 22(2) provides that a person who is required to keep records may apply to Inland Revenue for permission to keep records offshore, or in a language other than English. If a resident foreign trustee does not personally hold information relating to a foreign trust's offshore interests, the trustee may apply to Inland Revenue under this provision and the department may exercise its discretion to allow records to be kept offshore. If records are kept offshore, a trustee will be expected to provide records to Inland Revenue within a reasonable timeframe, if requested.


Keeping of records when no resident foreign trustee

If a resident foreign trustee leaves New Zealand and no resident foreign trustees remain in New Zealand, the departing trustee can either seek Inland Revenue's approval to keep and retain the records of the foreign trust outside New Zealand, or maintain the records of the foreign trust in New Zealand. It is the responsibility of the departing trustee to ensure that the records are readily available and can be provided at minimal cost to Inland Revenue, if requested.


Sanctions for non-compliance

Knowledge offence in section 143A

The main sanction for non-compliance with the rules is the knowledge offence in section 143A. It applies if a resident foreign trustee "knowingly" fails to disclose information or keep or provide records, as required by law.


If a resident foreign trustee has failed to comply with the rules but was not aware of these rules, sanctions will not apply. As a matter of practice, if Inland Revenue is aware of the name and contact particulars of a resident foreign trustee, it will notify the trustee of his or her tax responsibilities as a trustee of a foreign trust, seek the required information disclosure and outline the recordkeeping requirements. Whether the trustee is aware of his or her tax responsibilities will be a question of fact to be determined on a case-by-case basis, although it can be reasonably assumed that "professional trustees" and those trustees in the business of providing trustee services will be aware of the new requirements.


If a resident foreign trustee has failed to comply with the new rules and the trustee knew or ought to have known about his or her tax responsibilities as a trustee of a foreign trust, the trustee will be in breach of section 143A and, if convicted, will be subject to a monetary fine and/or imprisonment.


Sanctions for directors and managers of corporate trustees (sections 147(2B) and 147B)

If a corporate trustee has committed an offence under section 143A, a director or other individual who is in a position allowing significant influence over the management or administration of the corporate trustee may also commit an offence under new section 147B. This will occur if the section 143A offence was caused by an act done, or carried out by, or by an omission of, or through knowledge attributable to the director or other person.


Section 147(2B) clarifies that the section 147B offence is not intended to apply to non-managerial employees of corporate trustees such as clerical staff.


Application of sections HD26(2)-(4) of the Income Tax Act 2007

If a non-compliant resident foreign trustee is not a "qualifying resident foreign trustee" and the trustee has been convicted of an offence under section 143A and has not provided the requested information, the world-wide income of the foreign trust will be subject to tax in New Zealand.


This tax liability ceases when the resident foreign trustee provides the required information to Inland Revenue. If a non-compliant resident foreign trustee is a "qualifying resident foreign trustee", the sanctions for noncompliance will be limited to the penalty in section 143A. Therefore, foreign trusts that have at least one qualifying resident foreign trustee will never be subject to tax on their world-wide income â they will effectively enjoy a safe-harbour treatment. A resident foreign trustee can become a qualifying resident foreign trustee, or appoint a co-trustee who meets the qualifying resident foreign trustee criteria, at any time to qualify for the safe-harbour treatment.


The possibility of conviction under section 143A should provide sufficient deterrent for qualifying resident foreign trustees to meet their obligations under the new rules. A successful conviction may lead to disciplinary action being taken by the professional body of which the trustee is a member.


Non-application of section 143

The criminal penalty for failure to disclose information or keep records as required by law in section 143 will not apply to resident foreign trustees if they did not know of the new requirements described above, and/or another resident foreign trustee had been appointed to meet those requirements. It is recognised that had this penalty applied it would have created unfair results, especially for non-professional trustees of family trusts or estates and those trustees who are not in the business of providing trustee services.


Section 143(1B) clarifies that a resident foreign trustee cannot commit an offence under section 143(1)(a) for not keeping books and documents required to be kept under section 22. This will occur if the trustee proves that he or she did not know of the requirements of section 22 and/or that another resident foreign trustee had been appointed as agent of the resident foreign trustees for the purposes of section 22 and Inland Revenue had been notified of the appointment.


Section 143(1C) clarifies that a resident foreign trustee cannot commit an offence under section 143(1)(b) for not disclosing information required to be disclosed under section 59B. This will occur if the trustee proves that he or she did not know of the requirements under section 59B and/or that another resident foreign trustee had been appointed as agent of the resident foreign trustees for the purposes of section 59B and Inland Revenue had been notified of the appointment.


Two-year moratorium in applying the new rules in certain cases

Section 59B(3) provides that the disclosure required under section 59B(1) and (2) and the application of section 22(2)(fb) and (m) is delayed for a period of two years (calculated from the date on which the trustee becomes a New Zealand resident). This delay applies to individuals who have been appointed a trustee of a foreign trust before becoming a New Zealand resident and the trustee:

  • becomes a New Zealand resident on or after 1 October 2006; and
  • is not in the business of providing trustee services; and
  • has not been resident in New Zealand on any day in the period five years that ends immediately before the trustee becomes a New Zealand resident.


 

 

 

A trustee who is still resident in New Zealand at the end of the two-year period will be required to disclose the required information to Inland Revenue and start keeping records for New Zealand tax purposes. There is no ability to extend the two-year moratorium.


Requests for information about trusts from other countries

When a resident foreign trustee indicates that a settlor of a foreign trust is an Australian resident, Inland Revenue will periodically request additional information about the trust (such as financial records, details of distributions to beneficiaries and the identity of the settlor) and provide this information to the Australian Taxation Office.


Information will be provided to other DTA signatory countries on a case-by-case request basis, when Inland Revenue considers that there are valid grounds for requesting the information. Inland Revenue will not entertain general "fishing expeditions" from tax treaty partners for information on foreign trusts, or satisfy requests for information from countries that do not have a DTA or a tax information exchange agreement with New Zealand.


When a valid request for information is received, Inland Revenue will request additional information from the appropriate resident foreign trustee.


Inland Revenue is permitted to require information to be provided under section 17. That section imposes an obligation on persons to provide information that Inland Revenue considers necessary for any purpose relating to the administration or enforcement of the Inland Revenue Acts, or any other lawful function of the Commissioner.


Any information provided by a trustee will be subject to the existing tax confidentiality laws. Section 81 prevents Inland Revenue from providing information to a foreign jurisdiction except as permitted by section 88 such as under a DTA.


Section 61(1B) provides an exemption from the disclosure requirement in section 61 if the resident foreign trustee has complied with the disclosure requirement in section 59B.

 
 

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