The introduction of the domestic trust disclosure rules has added complexity to the tax return process for Trusts.  

The CA ANZ NZ Tax Team have been advocating for changes to ease the compliance burden for trustees of these small trusts. One way of achieving this is to expand the scope of the non-active trust/estate rules (a non-active trust/estate is not required to file a tax return or comply with the trust disclosure rules). Relief is in the wings with proposed legislative changes in this area currently before Parliament.

Broadly, the proposed amendments aim to:

• Clarify it will not be necessary for a trust/estate without an IRD number to apply for an IRD number and file the non-active declaration
• Increase the non-active criteria ‘safe harbour’ threshold for bank charges and administration costs from $200 to $1,000
• Change the threshold and nature of ‘safe harbour’ income earned from $200 of bank interest to $1,000 or less of ‘reportable income’ (as defined, assuming the trust is a natural person)
• Confirm interest paid by beneficiaries occupying a dwelling owned by the trust can be ignored
• Provide that if certain criteria are met a testamentary trust with small amounts of income in the tax year will not be required to file a return

The proposed amendments will apply for the 2021-22 and later income years.

Although the amending legislation is not expected to be enacted until March 2023, Inland Revenue has issued a variation to allow trustees to apply the non-active trust/estate rules as if the amendments have been made. There are three ways to do this:

1. File a return and apply the variation by supplying limited disclosure information using Inland Revenue’s spreadsheet.
2. Complete Inland Revenue’s spreadsheet and not file a return.
3. ile a return with full disclosure information.

If following either option 1 or 2, the spreadsheet must be completed and emailed to Inland Revenue by 1 March 2023. Find more detail and to download the spreadsheet.

The proposed legislative changes clarify that if a trust that satisfies the proposed non-active criteria does not have an IRD number, it is not required to register, make a non-active declaration or file returns. Therefore, it would not need to follow this process to become non-active.