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HC 9: Classifying trusts
or “How trusts are grouped when they give out money or property”
You could also call this:

“Trusts that follow strict income and tax rules”

A complying trust is a special type of trust that meets certain rules about its income and taxes. You might be dealing with a complying trust if:

The trust has followed these rules for its entire life up to when it gives out money:

  • It hasn’t earned any income from overseas that it doesn’t have to pay tax on.
  • It has paid all its taxes correctly every year.

Or, if those rules weren’t followed, someone has made a special choice to make it a complying trust, and they’ve followed some other strict rules about paying taxes.

Or, it’s a superannuation fund, which is a type of savings account for when you retire.

A foreign trust (a trust set up by someone from another country) can become a complying trust if someone makes a special choice before the trust gives out money, and they follow the tax rules after making that choice.

When we talk about the “life of the trust”, we mean every year from when the trust was first set up until it gives out money.

There are some complicated rules about how to decide if a trust meets these requirements, but the most important thing to remember is that a complying trust follows strict rules about its income and pays its taxes correctly.

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Next up: HC 11: Foreign trusts

or “Rules for trusts set up by people living outside New Zealand”
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Part H Taxation of certain entities
Trusts

HC 10Complying trusts

  1. A trust is a complying trust in relation to a distribution if—

  2. the following requirements are met for the life of the trust up to the time of distribution:
    1. no trustee income derived includes an amount of non-resident passive income, or non-residents’ foreign-sourced income, or exempt income under section CW 54 (Foreign-sourced amounts derived by trustees); and
      1. the tax obligations relating to the trustee’s income tax liability have been satisfied for every tax year; or
      2. the requirements of paragraph (a) are not met and—
        1. a person makes an election meeting the requirements of section HC 30(2) and the requirements of subsection (2) are met; or
          1. a person makes an election meeting the requirements of section HC 33(1) and for all income years beginning on or after the date on which the election applies to the trust and before the time of distribution, the trustee’s tax obligations relating to the trustee’s income tax liability for the trustee income, determined consistently with section HC 33(1C), are satisfied; or
            1. the requirements of paragraph (a) are not met and the distribution meets the requirements of section HC 30(4)(ab); or
            2. it is a superannuation fund.

              1. A foreign trust may become a complying trust to the extent set out in section HC 30 by—

              2. an election being made under section HC 30(2)—
                1. before the time of distribution; and
                  1. by the election expiry date given by section HC 30(5) for section HC 30(2); and
                  2. the requirements of subsection (1)(a) are met for trustee income derived after the election date.

                    1. The life of the trust referred to in subsection (1)(a) includes every income year from the start of the income year in which a settlement was first made on the trust up to the time of the distribution.

                    2. For the purposes of subsection (1)(a) and (ab), section HC 29(6) does not apply in determining whether the requirements are met.

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                    Notes
                    • Section HC 10(1)(ab): replaced, on , by section 135(1) (and see section 135(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section HC 10(1)(ac): inserted (with effect on 23 March 2020), on , by section 86(1) (and see section 86(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section HC 10(2)(a)(ii): replaced, on , by section 208 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                    • Section HC 10(3): amended, on , by section 135(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section HC 10(4): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 185(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).