New Zealand Trusts - hidden tax issues

Updated: Jan 19

Trusts are a very common structure for clients from New Zealand. They offer the benefits of flexibility and asset protection in ways that will be familiar to Australian accountants and tax practitioners.

In New Zealand the income of a complying trust is included in the beneficiary's taxable income to the extent that beneficiary is entitled to the income.

If your practice has New Zealand clients, you might find that you have a client who has unwittingly brought the New Zealand trust onshore in Australia because;

1. The New Zealand Trust may be resident of Australia

Your client may be a personal trustee of the New Zealand Trust, along with other New Zealand family members back in New Zealand. The issue is that the New Zealand Trust will become a resident of Australia if any of its trustees are resident of Australia for tax purposes.

All it takes is one trustee to be a resident and the whole foreign trust will be pulled onshore as a consequence of the definition of 'resident trust' estate in Section 6 of the ITAA 1936 (even if the clients is temporary resident).

That has the potential to create a whole host of tax issues in Australia, the least of which would be an additional filing burden for the client - but it may also create unforeseen income tax issues, including for example Australian tax on New Zealand sourced capital gains (based on the ATO's new approach in TD 2019/D7);

2. The New Zealand Trust may be caught by Division 6AAA of the ITAA 1936