Trustees: New Disclosures and Mandatory Financial Statements for Trusts this Year
Last year, the Inland Revenue Department (IRD) imposed new requirements for disclosures and the preparing of financial statements by trusts. This was done largely to prevent trusts from being used to avoid the new 39% tax rate. Now, for the recent income year (and subsequent years), trustees will need to make disclosures to IRD and prepare formal financial statements.
For the 2021 to 2022 income year (generally ending 31 March 2022), trustees will have to disclose to IRD:
- A statement of profit or loss and a statement of financial position for the trust;
- All settlements made on the trust and all distributions made by the trustees in the income year, as well as identifying details (including jurisdiction of tax residence) of those receiving a distribution;
- Details of the settlors who have made settlements in earlier income years, if not already provided to IRD; and
- Identifying details of any person with powers to appoint or remove a trustee or beneficiary or to amend the trust deed.
The information listed above must be provided with the trust’s IR6 income tax return.
The new rules generally apply to trusts that derive assessable income. However, a trust may be excluded as “non-active” if it derives only a maximum of $200 bank interest per tax year. Registered charitable trusts, foreign trusts, non-active trusts, and trusts which are eligible to be Māori authorities are all excluded.
Trusts subject to the new disclosure rules must prepare financial statements that meet certain minimum standards in accordance with an Order of Council signed March 2022. The full statements will only be required if requested by IRD, but the profit or loss statement and statement of financial position (which is required to be disclosed with the trust’s tax return) must be extracted from these statements. The full financial statements must:
- Include a statement of financial position setting out the assets, liabilities and net assets of the trust as at the end of the return year;
- Include a statement of profit or loss showing income derived, and expenditure incurred, by the trust during the return year;
- Be prepared using the double-entry method of recording financial transactions; and
- Use prescribed valuation principles and disclose the valuation method(s) adopted for valuing land, buildings, and shares/ownership interests.
These financial statements, called “simplified reporting”, will be sufficient for trusts with:
- Less than $100,000 assessable income (excluding residential property bright-line income);
- Less than $100,000 deductible expenditure (excluding that related to bright-line income); and
- Total assets valued at less than $5,000,000 as at the balance date.
There will be additional requirements for mandatory financial statements for larger trusts.
If you would like advice on what you need to do for your trust, please contact us.