Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Taxation of certain entities - Trusts

HC 31: When existing trusts come into tax base

You could also call this:

“Trusts that suddenly become taxable in New Zealand can choose how to value their assets”

This law explains what happens when a trust suddenly has to pay tax on money it receives, even though it didn’t have to before. This can happen because of changes, like when someone who set up the trust moves to New Zealand.

If this happens, the person in charge of paying the trust’s taxes gets to make a choice. They can decide how to value the trust’s things, like buildings, equipment, and goods for sale. They can either use the value these things had in the country where the trust used to pay taxes, or use the value they would have if the trust had always paid taxes in New Zealand.

For money agreements the trust has, they can choose to use either the current market value or a special calculation. This calculation looks at money paid to and by the trust, as well as any expenses or income from these agreements.

The law also says that if a charity trust stops being exempt from taxes, different rules apply. You need to look at other parts of the law to understand what happens then.

Remember, this law only applies to income that the trust has to pay tax on in New Zealand. It doesn’t include certain types of income that only people who don’t live in New Zealand have to pay tax on.

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 It might be out of date or be missing some parts.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=DLM1517346.

Topics:
Money and consumer rights > Taxes
Previous

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”

Next

HC 31B: Value transfer by deferral, or non-exercise, of right to demand payment, or

“Delaying or not asking for payment can be seen as giving a gift”

Part H Taxation of certain entities
Trusts

HC 31When existing trusts come into tax base

  1. This section applies if, through a change in circumstances, an amount derived by a trustee of a trust on a day in an income year is assessable income when it would not have been assessable income had it been derived before that day. Examples of a change in circumstances are—

  2. a non-resident settlor becomes resident in New Zealand, see section HC 30.

      1. This section does not apply if the relevant change in circumstances is a trust that is a tax charity failing to meet the requirements to derive exempt income under section CW 41 or CW 42 (which relate to charities). Instead, see sections HR 11 and HR 12 (which relate to non-exempt charities).

      2. The choice given in subsections (3) and (4) is to be made by the person who is liable to satisfy the income tax liability of the trustee.

      3. For the purposes of this Act, the cost of premises, plant, equipment, and trading stock of the trust at the date of the change in circumstances is either—

      4. the historical cost of the property or trading stock less accumulated depreciation loss, or other value, no higher than market value, that the trustee used at that date for income tax purposes in a country or territory in which the trustee is liable to pay income tax on trustee income; or
        1. the value that would be used at that date under this Act, calculated as if the trustee income derived by the trustee had always been assessable income.

          1. For the purposes of this Act, the consideration for a financial arrangement of the trust at the date of the change in circumstances is either—

          2. the market value of the financial arrangement on that date; or
            1. the value calculated using the formula—

              1. In the formula,—

              2. consideration paid to person is the consideration that is paid to the person before the date:
                1. expenditure is the expenditure that would have been incurred under the financial arrangements rules before the date:
                  1. consideration paid by person is the consideration that is paid by the person before the date:
                    1. income is the income that would have been derived under the financial arrangements rules before the date.

                      1. For the purposes of subsections (1) and (3)(b), assessable income does not include an amount derived only as non-resident passive income.

                      Compare
                      Notes
                      • Section HC 31(1)(a): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                      • Section HC 31(1)(b): repealed (with effect on 14 April 2014), on , by section 124(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                      • Section HC 31(1B) heading: inserted (with effect on 14 April 2014), on , by section 124(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                      • Section HC 31(1B): inserted (with effect on 14 April 2014), on , by section 124(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
                      • Section HC 31(1B): amended, on , by section 95(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                      • Section HC 31 list of defined terms charitable trust: repealed, on , by section 95(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                      • Section HC 31 list of defined terms tax charity: inserted, on , by section 95(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).