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Income Tax Act 2007

Tax credits paid in cash - Adjustment of net income for family scheme

MB 7: Family scheme income of settlor of trust

You could also call this:

“How your family income is calculated when you set up a trust”

This law explains how to calculate family scheme income when you set up a trust. It applies to you if you’re a settlor of a trust during the income year, unless you only provided services at less than market value for the trust’s administration or maintenance.

The law doesn’t apply if your trust is a registered charity, solely benefits a local authority, is a funeral trust, is a superannuation fund, or if you and your family can’t benefit from it except by court order.

To work out your family scheme income, you need to use a formula that considers the trust’s income, any related company income, and the number of settlors. The formula is: (trustee’s adjusted net income + companies income) divided by the number of settlors.

The trustee’s adjusted net income is the trust’s net income minus any income paid out as beneficiary income. The companies income is calculated using another formula for companies where the trustee owns 50% or more of the voting interests.

If the trust or related companies make deposits or receive refunds from a main income equalisation account, these amounts are added to or subtracted from the relevant parts of the calculation.

This law aims to ensure that income from trusts is fairly included when calculating your family scheme 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=DLM3661986.

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Part M Tax credits paid in cash
Adjustment of net income for family scheme

MB 7Family scheme income of settlor of trust

  1. This section applies for the purpose of determining the amount that represents the family scheme income of a person for an income year when the person is the settlor of a trust (the person's trust) at a time in the income year, other than solely as a result of providing personal services for less than market value in the administration of the trust or the maintenance of trust property.

  2. This section does not apply if—

  3. the trustee of the person's trust is registered as a charitable entity under the Charities Act 2005:
    1. the person's trust is solely for the benefit of a local authority:
      1. interest and dividends derived by the trustee of the person's trust would be exempt income of the trustee under section CW 45 (Funeral trusts):
        1. the person's trust is a superannuation fund:
          1. the person and the members of the person's family are not permitted to benefit from the person's trust except under an order of a court.

            1. The amount included in the person’s family scheme income is the amount calculated using the formulas in subsections (3) and (5), adjusted, if applicable, by subsections (7) and (8) for main income equalisation account amounts.

            2. For the purposes of subsection (2B), the relevant amount is calculated using the formula—

              (trustee’s adjusted net income + companies income) ÷ settlor number.

              Where:

              • In the formula in subsection (3),—

              • trustee’s adjusted net income is the net income of the trustee of the person's trust for the income year reduced, to not less than zero, by the amount of the trustee's income that vests or is paid by the trustee as beneficiary income for the income year:
                1. companies income is the greater of zero and the amount given by totalling the amounts calculated by applying the formula in subsection (5) to each company in which the trustee of the person's trust and associated persons hold, on the last day of the income year, voting interests of 50% or more:
                  1. settlor number is the number of settlors of the person's trust who are alive at any time in the income year, including the person, for which this section applies.

                    1. For the purposes of the item companies income in subsection (4)(b), an amount to be totalled is, for each relevant company, calculated using the formula—

                      trustee’s interest × (income − dividends).

                      Where:

                      • In the formula in subsection (5),—

                      • trustee's interest is the percentage voting interests for the relevant company held, on the last day of the company's income year, by the trustee:
                        1. income is the net income of the relevant company for the company's income year:
                          1. dividends is the total dividends paid by the relevant company for the company's income year.

                            1. For the purposes of subsection (2B), if the trustee or a company described in subsection (4)(b) makes a main income equalisation deposit for an income year, the amount of the deposit is added to—

                            2. the item trustee’s adjusted net income in the formula in subsection (3), if the trustee makes the deposit:
                              1. the item income in the formula in subsection (5), if the company makes the deposit.

                                1. For the purposes of subsection (2B), if the trustee or a company described in subsection (4)(b) receives a main income equalisation refund for an income year, the amount of the refund is subtracted from—

                                2. the item trustee’s adjusted net income in the formula in subsection (3), if the trustee receives the refund:
                                  1. the item income in the formula in subsection (5), if the company receives the refund.

                                    Notes
                                    • Section MB 7: added, on , by section 112 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                    • Section MB 7(2B) heading: inserted (with effect on 1 April 2011), on , by section 208(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7(2B): inserted (with effect on 1 April 2011), on , by section 208(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7(3) heading: replaced, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(3): replaced, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(3): amended (with effect on 1 April 2011), on , by section 208(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7(3) formula: amended, on , by section 106(1) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                    • Section MB 7(4) heading: replaced, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(4): replaced, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(4)(a): amended, on , by section 106(2) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                    • Section MB 7(5) heading: inserted, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(5): inserted, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(6) heading: inserted, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(6): inserted, on (applying for the 2014–15 and later income years), by section 110(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7(7) heading: inserted (with effect on 1 April 2011), on , by section 208(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7(7): inserted (with effect on 1 April 2011), on , by section 208(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7(7)(a): amended, on , by section 106(3) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                    • Section MB 7(8) heading: inserted (with effect on 1 April 2011), on , by section 208(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7(8): inserted (with effect on 1 April 2011), on , by section 208(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7(8)(a): amended, on , by section 106(4) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                                    • Section MB 7 list of defined terms main income equalisation account: inserted (with effect on 1 April 2011), on , by section 208(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7 list of defined terms main income equalisation deposit: inserted (with effect on 1 April 2011), on , by section 208(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7 list of defined terms main income equalisation refund: inserted (with effect on 1 April 2011), on , by section 208(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                                    • Section MB 7 list of defined terms market value: repealed, on , by section 110(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7 list of defined terms market value circumstance: repealed, on , by section 110(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7 list of defined terms market value interest: repealed, on , by section 110(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                                    • Section MB 7 list of defined terms trustee income: repealed, on , by section 106(5) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).