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."

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 applies to you and any other settlors, and you are jointly and separately liable. 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 are setting up a charitable trust, a superannuation fund, or a trust with income from a financial arrangement under section EW 31 or EZ 38. You might not be liable if you are a natural person and not living in New Zealand when you make the settlement. You can also avoid liability if you show that someone else should be liable for the tax. However, this does not apply when checking if the tax obligations are met for section HC 10(1)(a) and (ab) and for a complying trust.

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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.

This page was last updated on 29 January 2026 — View changes

Topics:

Money and consumer rights > Taxes

HC 28: Activities treated as those of settlor, or

"Situations where you might be considered a trust's settlor"

HC 30: Treatment of foreign trusts when settlor becomes resident, or

"Changes to foreign trust tax rules when the trust creator becomes a New Zealand resident"

Part HTaxation of certain entities
Trusts

HC 29Settlors’ liability to income tax

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.
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.
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.
This section does not apply to the settlor of—
a charitable trust; or
a superannuation fund; or
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.

This section does not apply if the settlor is a natural person who, unless they make an election under section HC 33,—
is not resident in New Zealand at the time of any settlement on the trust; and
had not after 17 December 1987 previously been resident in New Zealand.

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.
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

2004 No 35 s HH 4(4), (5)

Notes

Section HC 29(7): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 187(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).