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Income Tax Act 2007

Taxation of certain entities - Trusts

HC 33: Choosing to satisfy income tax liability of trustee

You could also call this:

“Choosing to pay a trust's income tax as a trustee, settlor, or beneficiary”

You can choose to pay the income tax for a trust if you’re a trustee, settlor, or beneficiary. Here’s how it works:

  • If you make this choice, you have to pay the trustee’s income tax, but not the tax that the trustee would usually pay for beneficiaries.

  • The choice can start from different dates, depending on when you make it and what type of trust it is.

  • For some trusts, the choice is treated as being made automatically if the trust meets certain conditions.

  • When you make this choice, the trust is treated as if it has a New Zealand resident trustee and settlor.

  • If you choose to backdate your choice, you might not have to pay penalties for increased tax in earlier years.

  • The tax treatment of money given out by the trust can change depending on when you make the choice and when the trust earned the money.

  • If you make this choice, you need to tell the tax department and give them some information.

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 It might be out of date or be missing some parts.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=DLM1517356.

Topics:
Money and consumer rights > Taxes
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HC 32: Liability of trustee as agent, or

“Trustee's responsibility to pay tax on money you receive from a trust”

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HC 34: Taxable distributions from non-complying trusts, or

“Tax on money from trusts that don't follow the rules”

Part H Taxation of certain entities
Trusts

HC 33Choosing to satisfy income tax liability of trustee

  1. A person who is a trustee, settlor, or beneficiary of a trust as described in subsection (2) may choose to satisfy the income tax liability of the trustee of the trust.

  2. A trustee is treated as making an election under subsection (1), if—

  3. for the period beginning at the start of the income year in which a settlement is first made on the trust and ending before the date on which the trust ceases to be a complying trust as described in paragraph (b), the trust is a complying trust under section HC 10(1)(a); and
    1. the trust ceases to meet the requirement in section HC 10(1)(a)(i) in an income year (the non-complying year); and
      1. the trustee meets the tax obligations relating to the income tax liability referred to in subsection (2), for the non-complying year and notifies the Commissioner that the trust is a complying trust for the non-complying year,—
        1. for a trustee that is required to file a return of income for the non-complying year, in the return of income and by the due date for the return of income:
          1. for a trustee that is not required to file a return of income for the non-complying year, by the due date for a return, by a resident foreign trustee, required by section 59D of the Tax Administration Act 1994 for the non-complying year.

          2. From when an election by a person under subsection (1) applies under subsection (3), the tax obligations of the trustee of the trust arising from the trust are determined on the basis that—

          3. the trustee is a New Zealand resident; and
            1. the trust has a settlor who is a New Zealand resident.

              1. The person making the election—

              2. must satisfy the tax obligations of the trustee relating to the income tax liability of the trustee; and
                1. is not required to satisfy the income tax liability of the beneficiary that the trustee must satisfy as agent under section HC 32.

                  1. The election under subsection (1) applies—

                  2. for an election to which section HC 30 applies, on and after the date on which the election is made; or
                    1. for an election to which section HC 30 does not apply and that does not meet the requirements of subsection (1B), on and after whichever date (the effective date) the person making the election chooses of—
                      1. the date of the election (the electing date):
                        1. the beginning of the income year (the electing year) that includes the electing date:
                          1. the beginning of an income year that is 4 years or less before the beginning of the electing year; or
                          2. for an election to which section HC 30 does not apply and that meets the requirements of subsection (1B), on and after the beginning of the non-complying year referred to in subsection (1B)(b).

                            1. An election meeting the requirements of subsection (1B) is effective until the beginning of an income year for which the trustee does not—

                            2. meet the tax obligations of the trustee relating to the income tax liability of the trustee for the income year:
                              1. notify the Commissioner that the trust is a complying trust for the income year in the way that would be required by subsection (1B)(c) for a non-complying year.

                                1. If the trustee of a trust is required to file a return of income for an income year, a person making an election under subsection (1) must notify the Commissioner of the election and provide to the Commissioner the information required by section 113F of the Tax Administration Act 1994 within the time allowed for filing a return of income for the income year. If section HC 30 applies, they must give notification by the election expiry date.

                                2. For a trust (the distributing trust) and an election for which the tax treatment of the trust is not given by section HC 30(3),—

                                3. a distribution made before the beginning of the electing year has the taxation consequences that it would have in the absence of the election:
                                  1. a distribution made after the beginning of the electing year from an amount derived by the trustee before the effective date is treated as being a distribution by a trust having the status, of foreign trust or non-complying trust or complying trust, that the distributing trust has when the amount is derived:
                                    1. a distribution made after the beginning of the electing year from an amount derived on or after the effective date is treated as being made by the trustee as trustee of—
                                      1. a complying trust, if the requirements of section HC 10(1)(ab) are met for the trustee income derived on or after the effective date:
                                        1. a non-complying trust, if subparagraph (i) does not apply:
                                        2. for the purposes of paragraphs (b) and (c), the amount derived before the effective date by the trustee in an income year that includes, but does not begin with, the effective date is—
                                          1. the amount derived before the effective date in the income year, if the person making the election does not choose to rely on subparagraph (ii); or
                                            1. a proportion of the amount derived in the income year equal to the proportion of the days in the income year that are before the effective date.

                                            2. When a person makes an election for a trust under section HC 33(1) with an effective date given by subsection (3)(b)(iii) and the election results in an increase in the assessed income tax liability of the trustee, or in the amount of resident withholding tax payable by the trustee, for an income year before the electing year, the person and the trustee are not liable for a penalty under Part 9 of the Tax Administration Act 1994 arising from the increase if the Commissioner accepts that the trustee’s tax position for each income year beginning on or after the effective date and before the electing year is none of—

                                            3. an unacceptable tax position under section 141B of the Tax Administration Act 1994:
                                              1. an abusive tax position under section 141D of that Act:
                                                1. a tax position that causes the trustee to be liable to pay a shortfall penalty for evasion or a similar act under section 141E of that Act.

                                                  Compare
                                                  Notes
                                                  • Section HC 33(1): amended, on (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 116(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                                  • Section HC 33(1): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 188(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33(1B) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 188(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33(1B): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 188(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33(1B): amended, on , by section 144(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(1B)(b): replaced, on , by section 144(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(1B)(c): replaced, on , by section 144(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(1C) heading: inserted, on , by section 144(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(1C): inserted, on , by section 144(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 188(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33(2)(a): replaced, on , by section 144(4) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(3): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on , by section 188(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33(3)(a): replaced, on , by section 144(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(3)(b): replaced, on , by section 144(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(3)(c): inserted, on , by section 144(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(3B) heading: inserted, on , by section 144(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(3B): inserted, on , by section 144(6) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(4): amended, on , by section 144(7) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(5) heading: inserted, on , by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(5): inserted, on , by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(5)(b): amended (with effect on 23 March 2020), on , by section 90(1)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                  • Section HC 33(5)(b): amended (with effect on 23 March 2020), on , by section 90(1)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                  • Section HC 33(5)(c): amended (with effect on 23 March 2020), on , by section 90(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                  • Section HC 33(5)(d)(ii): amended (with effect on 23 March 2020), on , by section 90(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                                  • Section HC 33(6) heading: inserted, on , by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33(6): inserted, on , by section 144(8) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33 list of defined terms complying trust: inserted (with effect on 1 April 2008), on , by section 188(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33 list of defined terms distribution: inserted (with effect on 1 April 2008), on , by section 188(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33 list of defined terms foreign trust: inserted, on , by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33 list of defined terms income: inserted, on , by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33 list of defined terms New Zealand resident: inserted (with effect on 1 April 2008), on , by section 188(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                                  • Section HC 33 list of defined terms non-complying trust: inserted, on , by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                                                  • Section HC 33 list of defined terms tax position: inserted, on , by section 144(9) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).