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Income Tax Act 2007

Taxation of certain entities - Trusts

HC 36: Trusts and minor beneficiary rule

You could also call this:

“Rules for when trusts give money to children”

This law is about when a trust gives money to a child (called a minor beneficiary). Usually, there are special rules about this, but sometimes those rules don’t apply. Here’s when they don’t apply:

If someone who isn’t related to the child or looking after them puts money in the trust, the special rules don’t count. The same goes if the person is related or looking after the child, but they’re just passing on money from someone else, or if a court told them to pay the child, or if the child needs protection from family violence.

If there’s more than one way money was put in the trust, and some of these ways follow the rules but others don’t, it’s okay as long as the ways that don’t follow the rules are small. For example, if someone gives the trust stuff worth less than $5,000, or lends the trust less than $1,000, that’s okay.

The law also explains what words like “associated person”, “guardian”, and “relative” mean. For instance, a guardian is someone legally responsible for a child, but not someone appointed by certain government departments or courts.

Section HC 35(2) talks more about the special rules for minor beneficiaries.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517363.

Topics:
Money and consumer rights > Taxes
Family and relationships > Children and parenting
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HC 35: Beneficiary income of minors, or

“How tax works for money given to children under 16 from trusts”

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HC 37: Testamentary trusts and minor beneficiary rule, or

“Rules for trusts set up in wills that pay money to young people”

Part H Taxation of certain entities
Trusts

HC 36Trusts and minor beneficiary rule

  1. Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if all settlements on the trust meet the requirements of section HC 37(1) or were made by—

  2. a person who is neither a relative or a guardian of the minor, nor a person associated with a relative or a guardian; or
    1. a person who is a relative, guardian, or a person associated with a relative or guardian, if—
      1. the settlor is acting as agent of the minor and has received the property from a person other than a relative, guardian, or their associate:
        1. the settlor is required by a court order to pay damages or compensation to the minor:
          1. the minor is a protected person, as defined in section 8 of the Family Violence Act 2018, in relation to a protection order, and the settlement, whether made jointly with another person or not, is made before the protection order is made or during the time the order is in force.

          2. Subsection (3) applies when more than 1 settlement is made on a trust, and 1 or more but not all settlements meet the requirements of subsection (1) or section HC 37(1).

          3. Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if the only settlements that do not meet the requirements are made through—

          4. the disposal for less than market value of property whose total value is no more than $5,000 at the end of the trust’s income year, valuing each settlement at the date of settlement; or
            1. providing financial assistance for less than market value in the form of a loan whose total value is no more than $1,000 on any day in the trust’s income year.

              1. Subsection (3) does not apply if services are provided to the trust by a relative, guardian, or associated person, unless those services are incidental to the operation of the trust. Examples of incidental services are bookkeeping, accounting, or trustee services.

              2. In this section,—

                associated person or person associated does not include a person associated only under sections YB 4 and YB 5 (which relate to relatives who are treated as associated persons)

                  guardian has the meaning set out in section 15 of the Care of Children Act 2004, and persons are connected by guardianship if 1 is the guardian of the other, but guardian does not include a guardian appointed under—

                  1. section 110(1)(a) to (d) of the Oranga Tamariki Act 1989; or
                    1. section 31 of the Care of Children Act 2004; or
                      1. section 53 of the Public Trust Office Act 1957 by a court order; or
                        1. section 7(4) of the Adoption Act 1955

                          relative means a person referred to in paragraph (a) of the definition of relative in section YA 1 (Definitions) extended to include being in a marriage, civil union, or de facto relationship with a person connected to the other through guardianship.

                          Compare
                          Notes
                          • Section HC 36(1): amended, on , by section 213 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                          • Section HC 36(1)(b)(iii): amended, on , by section 259(1) of the Family Violence Act 2018 (2018 No 46).
                          • Section HC 36(5) associated person or person associated: substituted, on (applying for the 2010–11 and later income years), by section 267(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                          • Section HC 36(5) financial assistance: repealed, on , by section 145 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                          • Section HC 36(5) guardian paragraph (a): amended, on , by section 149 of the Children, Young Persons, and Their Families (Oranga Tamariki) Legislation Act 2017 (2017 No 31).
                          • Section HC 36(5) relative: amended, on , by section 79 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                          • Section HC 36(5) relative: amended, on (applying for the 2010–11 and later income years), by section 267(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).