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Income Tax Act 2007

Taxation of certain entities - Trusts

HC 31: When existing trusts come into tax base

You could also call this:

"When a trust's income becomes taxable in New Zealand"

Illustration for Income Tax Act 2007

You need to know when a trust's income becomes taxable. This happens when something changes, like a non-resident settlor moving to New Zealand, see section HC 30. You can find more information about charities in section CW 41 and CW 42. You have choices to make about the trust's income tax. The person responsible for the trust's tax must make these choices. They can choose the value of the trust's assets, like premises or equipment, on the day the change happened. The value can be the original cost, or the market value on that day. You can also choose the value of financial arrangements, like loans or investments. This value can be the market value, or a calculated value using a formula. The formula uses terms like consideration paid to person, expenditure, and income. These terms refer to the amounts paid or received before the change happened. You can find more information about these terms in the financial arrangements rules. Note that some types of income, like non-resident passive income, are not included in the taxable income. You can find more information about this in sections HR 11 and HR 12.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517346.

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Topics:
Money and consumer rights > Taxes
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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"

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

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Part HTaxation 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 charitable trust 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).