Trust Disclosures and Resulting Surprises

IRD is collecting more and more information in relation to Trusts and use of Trust property by beneficiaries. This information must be disclosed when filing the tax return. Some innocent transactions can have unintended consequences. These can be wide ranging, for example:

benefits derived by beneficiaries that will be included for the purposes of assessing whether the beneficiary qualifies for support granted by WINZ,
identifying offshore beneficiaries that derive a benefit from NZ trusts, details of which are likely to be exchanged with foreign jurisdictions,
Deemed supplies and GST.

Deemed Supplies & GST

Lots of trusts have baches that are rented as a short term accommodation. This in itself is not a problem as the value of supplies is unlikley to reach the $ 60,000 (the GST registration threshold) if the bach is being rented sporadically.

It is not uncommon for the bach to be used by beneficiaries of the Trust rent free. One of the requirements of the Trust Disclosure Rules is to disclose the market value of the benefit enjoyed by the beneficiaries of the Trust. Why is this a problem?

Whilst the beneficiary is not required to make a payment to the Trust for the use of the bach, for GST purposes there is a deemed supply at market value. Consequently, when income from renting the bach to third parties is added with the market rental value of bach used by the beneficiaries, the GST registration threshold of $ 60,000 may be exceeded and suddenly the Trust will be required to register for GST and return GST to IRD, even in relation to the market value of the rent free accommodation enjoyed by the beneficiaries.

December 2022