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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 124
Minor beneficiaries
(2)
Subsecon (1) does not apply to beneficiary income derived by a minor. The beneficiary income is excluded income of the
minor, and treated as trustee income under secons CX 58 (Amounts derived by minors from trusts) and HC 35.
Page 125
HC 35
Beneficiary income of minors
When this secon applies
(1)
This secon applies when a person who is a minor derives an amount of beneficiary income from a trust in an income
year. Subsecon (4) and secons HC 36 and HC 37 override this subsecon.
Treatment of amount derived
(2)
The amount is—
(a)
excluded income of the minor under secon CX 58 (Amounts derived by minors from trusts):
(b)
treated as trustee income for the purposes of determining the rate of tax that applies, who pays the relevant tax,
and who provides the return of income.
A minor beneficiary is a natural person resident in New Zealand who is aged under 16 upon the trust’s balance date for
the income year (
secon HC 35(3)
)
If trust income is allocated to minor beneficiaries, the income will be treated:
o
As excluded income for the minor
o
As trustee income for the purposes of determining the rate of tax, who pays the tax and who provides the
return of income
There is a de minimis exempon of $1000
DISTRIBUTIONS FROM TRUSTS
HC 20
Distribuons from complying trusts
An amount that a person derives in an income year is exempt income of the person under secon CW 53 (Distribuons
from complying trusts) if—
(a)
the amount is a distribuon from a complying trust other than a community trust; and
(b)
the amount is not beneficiary income.
A “distribuon” is broadly defined and is essenally a transfer of value to a person in their capacity as a beneficiary of
the trust (so the rules of taxaon of dividends from a company can apply here as well)
One advantage of trusts is income spling (allocang income to beneficiaries with a lower tax rate), but another
advantage is the fact that
the trust can distribute its corpus (the original capital put into it like available subscribed
capital) free of tax
without liquidang the trust
If the trust is a complying trust
(as opposed to a foreign trust or non-complying trust)
and generates a capital profit
(e.g.
by selling shares),
this profit can be distributed tax free to beneficiaries
due to secon HC 20 – as
the income is of a
capital nature, it is not counted as income
(and thus not beneficiary income) and thus is exempt under this provision
o
However, if the trust is a foreign or non-complying trust, a distribuon will be taxable if it is not beneficiary
income, part of the corpus or a capital profit with a non-associate (foreign trusts only)
The tax rate for non-complying trusts is 45%
If income is not allocated to beneficiaries and
kept as trustee income
, trustees will pay tax at 33% – if they then
distribute the income to beneficiaries in a subsequent income year,
the income is “past trustees’ income” and not
beneficiary income and is not taxed
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