NEW FINANCIAL REPORTING AND DISCLOSURE REQUIREMENTS FOR TRUSTS
Effective 2022 financial year and onwards new financial reporting and disclosure rules apply to all income producing trusts. The new disclosure rules are contained in s 59BA of Tax Administration Act 1994. The purpose of these disclosure rules is to provide the Commissioner with an understanding of how Trusts are used and to assess the compliance with the 39% top marginal tax rate and possible tax avoidance. Foreign Trusts are excluded from these rules as they are subject to their own special set of disclosure rules. Non-Active, Charitable, Maori and Special Purpose Vehicle Trusts are also excluded from these rules.
The Core Requirements for All Trusts:
The Trustees of all trusts must prepare and provide
- Statement of profit or loss and a statement of financial position.
- Most trusts already prepare full financial statements.
- Financial statements must use the prescribed valuation principles and disclose the valuation method adopted for land, buildings, and shares/ownership interests. A trustee can choose to adopt a different valuation method for each of these categories.
Simplified Financial Reporting for Small Trusts:
- Applies in general to small Trusts if a Trust has
- less than $100,000 in assessable income (excluding income caused under Brightline Rules),
- less than $100,000 in deductible expenditure, and
- the total assets are valued at less than $5 million at balance date.
Additional Requirements for Trusts that do not meet the Simplified Reporting Criteria:
The financial statements must:
- Be prepared by 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.
- Disclose several specific items:
- A reconciliation between the profit or loss in the statement of profit or loss to taxable income.
- An appropriately detailed schedule of the trust’s fixed assets and depreciable property used for tax purposes.
- Matters relating to trusts with forestry and livestock businesses:
- information about the cost of timber as at the end of the income year and a reconciliation of movements in the cost of timber during the income year, and
- If the trust is a specified livestock owner, details of livestock valuation methods, valuations, and calculations for tax purposes.
- Details of transactions between the trust and any associated person of the trustee, unless the transaction is minor and incidental to the activities of the trust.
- Transaction details include the names of associated persons, the nature of the association, the nature of the transactions and the amounts involved.
- Disclosure is not required if the transaction is at a market rate.
Trustees must also disclose the following information:
- The amount and nature of settlements received (settlements do not need to be disclosed if they are minor services incidental to the activities of the trust and are provided to the trustee at less than market value).
- Settlor details, including details of previous settlors (watch deemed settlor rules) if not previously supplied to the Commissioner.
- The amount and nature of distributions made.
- Details of beneficiaries who received the distributions (including any movements in beneficiary current accounts)
- Appointer details. Appointor is a person who holds a power of appointment, removal of trustees or power to amend the Trust Deed.
For individuals who fall within any of the above categories, the trustees will need to provide their full name, date of birth, the country of tax residency and their tax identification number.
All trustees and their advisors need to be mindful of these new rules when preparing 2022 financial statements and income tax returns.
If you have any questions or would like to know more, please do not hesitate to ask any of us.
Your Team at Roberts & Associates Ltd
e-mail: [email protected]