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New Zealand law explained for everyone

Income Tax Act 2007

Taxation of certain entities - Trusts

HC 25: Foreign-sourced amounts: non-resident trustees

You could also call this:

“Rules for taxing overseas income of non-resident trustees”

When a non-resident trustee earns money from overseas that would be taxable if someone living in New Zealand earned it, this law applies to them.

You need to pay tax on this overseas money if, at any time during the year:

  • Someone who set up the trust lives in New Zealand and isn’t just living here temporarily
  • The trust is a superannuation fund
  • The trust was set up after someone died or while they were alive, and one of the trustees lives in New Zealand, and the person who set it up died while living in New Zealand

However, you don’t have to pay tax if:

  • The trustee lives outside New Zealand all year, and no one has added money to the trust since 17 December 1987
  • The trustee lives outside New Zealand all year, and anyone who has added money to the trust since 17 December 1987 didn’t live in New Zealand when they added the money or any time before that

These rules don’t change how the person who set up the trust pays tax. They also don’t change how we decide if a trust follows all the tax rules.

When figuring out how much tax the trustee needs to pay, we pretend the trustee lives in New Zealand. This helps us work out things like how to handle money arrangements, tax credits for overseas tax, and other international tax rules.

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 It might be out of date or be missing some parts.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=DLM1517322.

Topics:
Money and consumer rights > Taxes
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“Trustees must manage and pay tax on trust income”

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HC 26: Foreign-sourced amounts: resident trustees, or

“When NZ trustees don't pay tax on overseas income”

Part H Taxation of certain entities
Trusts

HC 25Foreign-sourced amounts: non-resident trustees

  1. This section applies when a non-resident trustee derives, as trustee income, in an income year a foreign-sourced amount that would be assessable income if derived by a person resident in New Zealand.

  2. Despite section BD 1(4)(a), (b), and (5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income), the amount is assessable income of the trustee if, at any time in the income year,—

  3. a settlor of the trust is a New Zealand resident who is not a transitional resident; or
    1. the trust is a superannuation fund; or
      1. the trust is a testamentary trust or an inter vivos trust, of which—
        1. a trustee is resident in New Zealand; and
          1. a settlor died resident in New Zealand (whether or not they died in the income year) or the last surviving settlor was resident in New Zealand when that settlor ceased to exist.

          2. Subsection (2) does not apply if—

          3. the trustee is resident outside New Zealand at all times in the income year; and
            1. no settlement has been made on the trust after 17 December 1987 and, if an election has been made under section HZ 2 (Trusts that may become complying trusts), the election has not been made by the trustee.

              1. Subsection (2) does not apply if—

              2. the trustee is resident outside New Zealand at all times in the income year; and
                1. when a settlement has been made on the trust after 17 December 1987, it was made only by a settlor who is not resident in New Zealand—
                  1. at the date of the settlement; and
                    1. at any time between 17 December 1987 and the date of settlement.

                    2. Subsections (3) and (4) do not—

                    3. affect a settlor’s income tax liability under the trust rules:
                      1. apply to determine whether the tax obligations in relation to the trustee’s income tax liability are met for the purposes of section HC 10(1)(a)(ii) and meeting the requirements for a complying trust.

                        1. For the purpose only of calculating the taxable income of a trustee referred to in subsection (2), and not otherwise, the trustee is treated as resident in New Zealand for the purposes of—

                        2. sections EW 9 and EW 11 (which relate to financial arrangements):
                          1. section LJ 2 (Tax credits for foreign income tax):
                            1. section OE 1 (General rules for persons with branch equivalent tax accounts):
                              1. the international tax rules.

                                Compare
                                Notes
                                • Section HC 25(1): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 84(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                • Section HC 25(2)(c)(ii): amended, on , by section 139 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                • Section HC 25(6)(c): replaced, on (applying for income years beginning on or after that date), by section 75(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).