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Income Tax Act 2007

Taxation of certain entities - Trusts

HC 14: Distributions from trusts

You could also call this:

“What you get from a trust and when it counts as a distribution”

When a trustee gives something valuable to you because you’re a beneficiary of a trust, it’s called a distribution. This happens when the trustee transfers the value to you.

Sometimes, when a trustee sets something aside for your benefit, it’s only counted as a transfer of value in two special cases. The first case is if the amount or property would have been your income or a taxable distribution if you lived in New Zealand. The second case is when certain rules about forgiving debts apply.

If a trustee pays you interest on money they owe you, it’s not usually a distribution. But if the interest is more than what’s normal in the market or what’s set by law, the extra amount is considered a distribution.

A distribution happens when what’s given to you becomes fully yours or when it’s paid to you. Distributions can be made in different ways, either directly or indirectly, and through one or many transactions.

Just because you are or will be a beneficiary of a trust doesn’t mean you’ve given or received anything of value.

When a trustee pays you interest on money they owe you, it’s not a distribution unless the interest is more than what’s normal in the market or what’s set by law.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517287.

Topics:
Money and consumer rights > Taxes
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Part H Taxation of certain entities
Trusts

HC 14Distributions from trusts

  1. A trustee makes a distribution when the trustee transfers value to a person because the person is a beneficiary of the trust.

  2. Despite subsection (1), a settlement for the benefit of a beneficiary is treated as a transfer of value only—

  3. if the amount or the property being settled would have been beneficiary income of, or a taxable distribution to, a beneficiary, had it been distributed at the time to a beneficiary resident in New Zealand; or
    1. when sections EW 50 or EZ 39 (which relate to forgiveness of debt) applies, if the property being settled is an amount forgiven and treated as paid as described in section EW 44(1) or (2) (Consideration when debt forgiven for natural love and affection) or EZ 39(1).

      1. If a trustee pays to a beneficiary interest on an amount owed to the beneficiary, the payment is not a distribution by the trustee except to the extent to which the interest exceeds the amount given by the rate that is the greater of the market rate and the prescribed rate of interest.

      2. A distribution is made when what is transferred—

      3. vests absolutely in interest in the person; or
        1. is paid to the person.

          1. A distribution may be made directly or indirectly, or by 1 transaction or a number of transactions, whether related, connected, or otherwise.

          2. The fact that a person is, or will become, a beneficiary of a trust does not constitute the giving or receiving of value.

          Compare
          • 2004 No 35 s OB 1 distribution
          Notes
          • Section HC 14(2B) heading: inserted, on , by section 136(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
          • Section HC 14(2B): inserted, on , by section 136(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
          • Section HC 14 list of defined terms interest: inserted, on , by section 136(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
          • Section HC 14 list of defined terms prescribed rate of interest: inserted, on , by section 136(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).