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Income Tax Act 2007

Taxation of certain entities - Trusts

HC 29: Settlors’ liability to income tax

You could also call this:

"When you put money into a trust, you might have to pay tax on its income"

Illustration for Income Tax Act 2007

You make a settlement to a trust after 17 December 1987 and live in New Zealand. You are liable for income tax as an agent of the trustee if the trustee gets trustee income. This is a joint and several liability if there is more than one settlor. You do not have to pay this tax if the trust has a resident trustee for the whole income year. You also do not have to pay if you settle a trust that is a tax charity or a superannuation fund. There are other exceptions, such as when you remit an amount under a financial arrangement to which section EW 31 or EZ 38 applies. You can also avoid paying this tax if you are a natural person and you were not living in New Zealand when you made the settlement. You must tell the Commissioner about the settlements made to avoid paying this tax. However, this does not apply to meeting tax obligations for a complying trust, as stated in section HC 10(1)(a) and (ab). You can find more information about this in section HC 32, section EW 31, section EZ 38, and section HC 33. These sections explain more about the tax obligations and exceptions. You can read about them to understand your liability better.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517335.

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Topics:
Money and consumer rights > Taxes
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"Situations where you might be considered a trust's settlor"

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Part HTaxation of certain entities
Trusts

HC 29Settlors’ liability to income tax

  1. This section applies to a person who makes a settlement to or for the benefit of a trust after 17 December 1987, and the settlor is resident in New Zealand in an income year. It applies whether or not they settled property on the trust on or before that date. Subsections (3) and (4) override this subsection.

  2. If a trustee of the trust derives trustee income in the income year, the settlor is liable as agent of the trustee for income tax payable by the trustee. For a trust with more than 1 settlor, the liability is joint and several. However, this subsection does not apply to income tax that the trustee is liable for as agent under section HC 32.

  3. This section does not apply if the trust has a resident trustee for the full income year or, if the first settlement on the terms of the trust is made during the income year, from the day on which the settlement is made to the end of the income year.

  4. This section does not apply to the settlor of—

  5. a trust that is a tax charity; or
    1. a superannuation fund; or
      1. a trust to the extent to which trustee income is derived from the settlor’s remitting an amount under a financial arrangement to which section EW 31 or EZ 38 (which relate to base price adjustments) applies.

        1. This section does not apply if the settlor is a natural person who, unless they make an election under section HC 33,—

        2. is not resident in New Zealand at the time of any settlement on the trust; and
          1. had not after 17 December 1987 previously been resident in New Zealand.

            1. This section does not apply to the extent to which the settlor establishes, through full disclosure to the Commissioner of the settlements made, that another person who has settled property on the trust should be liable, having regard to the respective settlements made.

            2. Subsection (6) does not 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) and (ab) and meeting the requirements for a complying trust.

            Compare
            Notes
            • Section HC 29(4)(a): amended, on , by section 94(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
            • Section HC 29(7): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 187(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
            • Section HC 29 list of defined terms charitable trust: repealed, on , by section 94(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
            • Section HC 29 list of defined terms tax charity: inserted, on , by section 94(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).