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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 123
(2)
For the purposes of subsecon (1) and secons HC 6 and HC 7, if the trustee is treated as having an amount of income in
the income year under a provision in this Act and the amount is not derived under ordinary concepts, then the amount is
treated as derived in the income year.
For tax purposes, trusts have unusual characteriscs due to a dual derivaon principle – a trust can derive income itself
and be the trustee’s income, or income can be allocated to the beneficiary’s income
An advantage of this is that lower tax can be paid on the income – the trust will derive the income, which can then be
allocated to beneficiaries (so the income is treated as derived by the beneficiary) who may have a lower marginal tax
rate than the trust (33%) and thus pay less tax on the income
TRUSTEE INCOME
HC 7
Trustee income
(1)
To the extent to which it is not beneficiary income, an amount of income derived by a trustee of a trust is
trustee income
.
An income that the trust derives will always be trustee income except to the extent that it is distributed to beneficiaries
BENEFICIARY INCOME
HC 6
Beneficiary income
Meaning
(1)
An amount of income derived in an income year by a trustee of a trust is beneficiary income to the extent to which—
(a)
it
vests absolutely in interest
in a beneficiary of the trust in the income year; or
(b)
it is
paid
to a beneficiary of the trust in the income year or by the date aſter the end of the income year referred to
in subsecon (1B).
Date by which income must be allocated
(1B)
The date referred to in subsecon (1)(b) is the later of the following:
(a)
a date that falls within 6 months of the end of the income year; or
(b)
the earlier of—
(i)
the date on which the trustee files the return of income for the income year; or
(ii)
the date by which the trustee must file a return for the income year under secon 37 of the Tax
Administraon Act 1994.
(the date is 31 March of the following income year)
Income derived by the trust will be beneficiary income (i.e. derived by the beneficiary) if:
o
It vests in interest in a beneficiary in the income year
o
It is paid to a beneficiary in the income year OR at any me up to the end of the next income year
Most trusts in New Zealand perform their calculaons by an account as of 31 March, but they will
take some me aſter 31 March to work out the trust’s profits and meet with the
selor/trustees/beneficiaries to discuss what would be the best amount to allocate to the
beneficiaries – the formula in subsecon (1B) reflects the fact that accountants take this me to
prepare the trustee to allocate beneficiary income and file a return
Example
Balance date for the trust is 31 March 2019
6 Months aſter is 30 September 2019
Return is filed 20 February 2020 and the return is due 31 March 2020 under secon 37 of the
Tax Administraon Act – the earlier of these dates is 20 February
The latest date between 20 February 2020 and 30 September 2019 is 20 February 2020
Therefore, under secon HC 6(1B), the payment or resoluon must be made before 20
February 2020 in order to be beneficiary income
BENEFICIARY INCOME OF MINORS
HC 17
Amounts derived as beneficiary income
Non-minor beneficiaries
(1)
An amount that a person derives in an income year as beneficiary income is income of the person under secon CV 13(a)
(Amounts derived from trusts), except to the extent to which it is beneficiary income to which secon HC 35 applies.
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