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New tax return information for trusts – what are the implications?

By Lee Harris - 27 May 2022

Information that must now be provided alongside annual trust tax returns will come as an unpleasant surprise for many trustees and beneficiaries. There is no doubt that Inland Revenue is taking a close look at trusts to evaluate how they are being used, and to decide whether the use should be subject to tax.

It is not uncommon for trust assets to be enjoyed cost-free by trust beneficiaries. For example, the bach is rented out to cover costs, such as via AirBnb, and it is also used rent free by trust beneficiaries.

The example of the trust-held bach is particularly alarming. Short term rental is a commercial activity, so when gross rental income reaches the $60,000 threshold, GST is triggered.

One of the new details that needs to be disclosed annually is the market value for beneficiaries' enjoyment of trust assets. Inland Revenue intends to combine this market value to the short term rental income to determine whether the $60,000 threshhold has been reached.

If it has, the bach would be subject to GST on a sale or a disposal, and the total value of the accommodation supply provided is subject to GST. This includes the rent-free value provided to beneficiaries.

Example 7 in Interpretation Statement IS 20/04 provides a specific example of Inland Revenue's current view:

Example 7 - supplies to associated persons

The Smith and Jones Family Trust owns a large modern holiday home in the South Island. The holiday home is advertised on a website for $600 a night. The holiday home is rented out for most of January and is also popular in ski season. In total, it is rented out for 80 nights a year. The total income from taxable supplies is $48,000. Based on these supplies alone, the trustees would not have to register for GST.

However, during the year, some family members use the holiday home. On each occasion, the family members are beneficiaries or relatives of beneficiaries, so are "associated persons". They stay for a week at Christmas and a week in the school holidays. Family members also stay on occasional weekends when there are no other bookings. In total, family members stay 28 nights a year for which they do not pay rent to the trustees. The open market value of the supplies to associated persons is 28 x $600 = $16,800. The total value of taxable supplies is $64,800 and the trust must register for GST under s 51 and any supplies of accommodation will be subject to GST.


My next blog will cover other situations that will be affected by the new information requirements for trusts. This includes wills with life interests and implications for beneficiaries, trustees or settlors who are now living overseas or who have foreign obligations.


Melissa Clark

Lee Harris


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