31 March 2023 marked the end of the tax agent filing season for the first year of filing enhanced trust disclosures. CA ANZ received numerous member queries and many of the concerns or frustrations related to: a lack of initial detailed guidance, the quantum and relevance of information requested, compiling the information in the form requested (including system inflexibility), and the additional time and cost to comply.

The trust disclosure regime was introduced into legislation in December 2020 and came into force for most trusts for the year ended 31 March 2022. At the time the new trust disclosure rules came in, Inland Revenue’s Tax Information Bulletin (TIB) stated that:

This [the new trust disclosure rules] supports the Commissioner’s ability to assess compliance with the new 39% personal income tax rate. It also assists the Commissioner in understanding and monitoring the use of structures and entities by taxpayers. 

It also said:

The amendments… provide Inland Revenue with more information on the use and financial position of trusts, and to remedy the current information deficit. 

The “current information deficit” was not fully explained. Inland Revenue have sought a wide range of information as part of the initial trust disclosure reporting. Concerns have been raised as to how useful certain aggregated data will actually be. 

How is it going so far?

When we have asked our members for feedback, most have said that the first year has gone “okay”. On the negative side, they have found the forms confusing and illogical in places and have referenced significant compliance costs. 

On the positive side, they have generally managed to file the forms for most of their clients. Many hope that the compliance costs will be lower after the first year.   

Some things people have found difficult include: 

• The level of detail required for the financial statements is more than would be required under the Trusts Act 2019
• The use of the company financial statements as a model, when some concepts are not applicable or do not work well in a trust context, such as “owners equity”
• The number of different disclosure points required for financial arrangements (e.g. associated persons financial arrangements, drawings, current account year end balances)
• The requirement to break out and disclose land and buildings separately
• Beneficiaries that are also settlors for tax purposes due to the wide definition of “settlor”
• Finding details for people who are now deceased such as IRD numbers and dates of birth for original settlors (particularly the inability to complete the disclosure information in the system where not all details may be known)

Tax agents should contact their Inland Revenue agent account manager in the first instance if they have issues with the disclosures. Members are also welcome to contact the tax team – with specific examples of situations where ease of compliance is frustrated. This will help us identify any additional pain points which we can seek to resolve with Inland Revenue. 

Inland Revenue has not released any detail about the level of compliance with the disclosures. This would be useful to know. Comment to date has been limited to common disclosure “errors” (pain points). Review of information requirements, the form of data requested and further guidance would enable Inland Revenue to simplify or clarify the rules for future years (2025 onwards) while still allowing them to carry out their compliance work and data analysis.   

The trust disclosure regime has generated a lot of data for Inland Revenue, but at significant compliance cost. CA ANZ understands that Inland Revenue will undertake a full post-implementation review of the regime. We trust that this review will evaluate what information is required and will take into account all costs to comply. It is unlikely that trust disclosure rules will be withdrawn, but CA ANZ is advocating for the refinement and reduction of disclosures required.