Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Taxation of certain entities - Trusts

HC 29: Settlors’ liability to income tax

You could also call this:

“How you might pay income tax on trust income if you set up a trust”

If you live in New Zealand and set up a trust after 17 December 1987, you might have to pay income tax on the trust’s income. This applies even if you put property in the trust before that date.

You’re responsible for paying the tax if the trust earns money and doesn’t have a trustee living in New Zealand for the whole year. If more than one person set up the trust, you all share this responsibility.

There are some cases where you don’t have to pay the tax:

If the trust has a trustee living in New Zealand for the whole year, or from when the trust was set up until the end of the year.

If the trust is a tax charity, a superannuation fund, or if the income comes from you cancelling a debt.

If you’re not from New Zealand and have never lived here before, unless you choose to be responsible.

If you can show that someone else who put property in the trust should pay instead.

Even if someone else pays the tax, you might still need to meet other rules to have a ‘complying trust’.

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 It might be out of date or be missing some parts.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=DLM1517335.

Topics:
Money and consumer rights > Taxes
Business > Starting a business
Previous

HC 28: Activities treated as those of settlor, or

“Situations where you might be considered a trust's settlor”

Next

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 H Taxation 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).