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Income Tax Act 2007

Taxation of certain entities - Terminating provisions

HZ 2: Trusts that may become complying trusts

You could also call this:

“How some older trusts can become compliant with tax rules”

This section talks about trusts that can become complying trusts. It applies to trusts that were set up on or before 17 December 1987. Even if more money was added to the trust after that date, it still counts.

For these trusts to be included, someone involved with the trust (like the person who set it up, manages it, or benefits from it) had to choose to pay income tax on the trust’s income. They had to make this choice by 31 May 1989, and it applied to income from the 1988-89 tax year onwards.

If the trust made money from outside New Zealand in the 1987-88 tax year or earlier, it’s treated as if it should have paid income tax on that money. This is true even if no one managing the trust lived in New Zealand at the time. The same applies if the trust made money in New Zealand, but only as non-resident passive income, and they’ve already paid the required tax on it.

The law assumes that the trust has already paid all the income tax it needs to on this money. This means the trust doesn’t owe any more tax on this income.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517681.

Topics:
Money and consumer rights > Taxes
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HZ 1: Distributions from trusts of pre-1989 tax reserves, or

“Money from older trusts: special tax rules for pre-1989 income”

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HZ 3: Special partnerships: transition into limited partnerships and limited partnerships deduction rules, or

“Rules for special partnerships becoming limited partnerships”

Part H Taxation of certain entities
Terminating provisions

HZ 2Trusts that may become complying trusts

  1. This section applies in relation to a settlement made on a trust on or before 17 December 1987, whether or not further settlements have been made on the trust after that date, when a settlor, trustee, or beneficiary of the trust chose under section 228(7) of the Income Tax Act 1976 on or before 31 May 1989 to pay income tax on trustee income derived in the 1988–89 tax year and later tax years.

  2. Trustee income having a source outside New Zealand, or having a source in New Zealand only as non-resident passive income in relation to which the income tax obligations have been satisfied, in the 1987–88 tax year and earlier tax years when no trustee was resident in New Zealand is treated as liable to income tax, other than only as non-resident passive income.

  3. The trustee’s obligations in relation to their income tax liability on the trustee income are treated as having been satisfied.

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Notes
  • Section HZ 2(2): amended, on , by section 103(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
  • Section HZ 2 list of defined terms derived from New Zealand: repealed, on , by section 103(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
  • Section HZ 2 list of defined terms source in New Zealand: inserted, on , by section 103(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).