Beware – common errors in trust disclosures
Common mistakes to avoid when complying with NZ domestic trust disclosure rules, as the end of the 2022 tax return filing season fast approaches.
- Common trust disclosure mistakes to avoid
- Inland Revenue has provided additional explanation and regulations
- Some exemptions may be applied for a simplified reporting trust
As the end of the 2022 tax return filing season fast approaches, a big issue that has been challenging members this filing year is complying with the NZ domestic trust disclosure rules.
While detailed Inland Revenue reports and statements are available, there is often a gap when it comes to actually filling in the fields/boxes in the return. To help overcome this gap, Inland Revenue has identified a list of common errors based on trust returns filed during the 2022 calendar year.
These common errors include:
- Incorrect IRD numbers used for settlors, beneficiaries and persons with powers of appointment.
- No settlor information disclosed.
- Incomplete or incorrect disclosure of financial statement information.
Inland Revenue has also provided additional explanation regarding disclosure of details for settlors, beneficiaries, persons with powers of appointment, and details and values of both settlements and distributions made. For example, the items to be disclosed if a settlor has not made a settlement in the current year (i.e. historic settlors). Inland Revenue confirms that in these cases, provided:
“… the trustee has made reasonable attempts to get the information, but been unable to get the information, … at a bare minimum, supply the settlor’s name and tick the box ‘no settlement has been made by this settlor in this income year’. No settlement value should be supplied for historic settlements.”
A timely reminder that the items to be included in the trust’s financial statements is set out in the regulation executed in March 2022. These are minimum requirements for preparing financial statements for domestic trusts. The relevant trust disclosures in the trust tax return are drawn from the financial statements. The financial statements are not required to be filed with the return but should be available to Inland Revenue if requested.
Some financial reporting exemptions may be applied for a ‘simplified reporting trust’. Briefly, a ‘simplified reporting trust’ satisfies all of the following criteria in the income year:
- assessable income derived is less than $100,000 (excluding bright-line income)
- deductible expenditure or loss incurred is less than $100,000, and
- total assets of the trust (whether or not revenue account property and calculated using the same valuation principle) is less than $5 million.
However, trustees of this class of trust must still ensure they gather any relevant information required to complete the disclosures in the tax return.
See Inland Revenue’s website for more detail on the common errors (including what to do if a return has been filed containing an identified error).