trusts in NZ

Hi Wayne,

You can set up companies online in New Zealand. I have not heard of doing it online with trusts. Trust are important legal documents, and getting it right is important for the best legal and tax outcomes.

Either you or your Australian trustee company can be the trustee of a New Zealand Trust. As long as your settlor is a New Zealand resident (can be me), the Trust will be a Qualifying Trust. This means that the capital gains will not be taxed in New Zealand.

The NZ Trust structure also allows you to not pay CGT in Australia – as long as no capital gains sourced distributions are made. Capital distributions can be made with no tax consequences.

Contact castledreamer. She has been in contact with my firm and has made enquiries about a Trust structure. Otherwise, you can email me for more information, free Rental Property booklet, fact sheets, etc.

Christopher Raynal
Master Accountants Group Limited
PO Box 46018 Herne Bay
Auckland New Zealand
Ph +64 9 360 3259
Fax +64 9 360 2180
http://www.masteraccountants.co.nz

Hi Wayne

We have trusts set up in Aus. We set them up thru Bruce Whiting of Mint Corporate Structures telephone 9299 7924, [email protected]. He would be a great person to ask. For finance questions we recommend Roslyn Hacket, Topline Finance (02) 4627 1236, email [email protected]. Sorry can’t give you any direct answers but may they can.

Good luck
Diane

Goode1

Hi Chris,

Well in this case it’s more that I was talking to an accountant here about transferring funds to a NZ trust and he said I might be subject to these provisions. So I thought I’d read up on them myself first before letting him charge me money to do it for me [grad].

I think the “inadequate or no consideration” phrase only applies to the non-discretionary trust, which is not clear in the quote you gave. In the document I’m reading (the ATO’s foreign income return form guide) it makes it clearer:

And the glossary defines “property” to include money.

So it would seem to me that the transferring of money to a NZ discretionary trust would be subject to these provisions.

One possibility that may help me, given that I have family in NZ, is where it mentions exempted income:

So if I always distributed capital gains to only NZ beneficiaries then perhaps I’d be okay (and presumably they’d have no tax to pay either).

Although I thought I read or heard somewhere that even if the property was bought in an Australian trust, foreign-sourced income distributed to a non-resident beneficiary would not be taxed in Australia either (but I’d have to ask about that to be sure – there might still be some witholding tax).

From my reading of this document it appears I could have a problem (and thus so potentially could other people), but it’s looking like I might have to pay the accountant here money after-all to check it out properly for me [eh].

How much simpler life would be without tax…

Regards,
GP

Hi GP,

You have still not picked up on the operative words of “for inadequate consideration”. What this means is where property, including money, is transferred to the Trust for less than its market value.

In the case of real estate property, it would be where property worth $500 000 is transferred for $400 000. Can you see what the ATO is trying to stop or capture if it does happen?

In the case of money, the loan is recorded as full value (naturally), then it is written off or gifted away. This is how money would be transferred at less than its market value.

My earlier comment that money could not be transferred at less than market value is correct, as it can be done no other way. However, the loan can be written off or gifted, and ATO have other rules to cover that situation as well as these rules – the transferor trust rules.

The question about an Australian Trust being able to distribute foreign sourced capital gains tax-free to a non-resident beneficiary would have to be addressed to an Australian tax accountant.

I suspect that the Australian Trust has earned the income and will be assessed on it by the ATO. Where the distribution is made to a non-resident, higher non-resident income tax rates would apply.

A non-resident receiving a distribution from the Australian Trust would still have to lodge an Australian income tax return. I had situations in Australia where I did just that.

Christopher Raynal
Master Accountants Group Limited
PO Box 46018 Herne Bay
Auckland New Zealand
Ph +64 9 360 3259
Fax +64 9 360 2180
http://www.masteraccountants.co.nz

Hi GP,

On a closer reading of the provisions quoted, you are correct. The version I had downloaded from the internet did not clarify as well as yours the first and second limbs.

The for less than adequate consideration rule applies only to the non-discretionary foreign trusts.

The Foreign Investment Fund (FIF) rules won’t apply to trusts that you beneficially own and control. Those rules are only for foreign trusts where you have a small percentage ownership.

There is de minimus rule in the transferor trust provisions that is interesting. I am pasting it below –

“De minimis exemption

The de minimis exemption ensures that the transferor trust measures do not apply to small amounts derived by a trust estate in a broad-exemption listed country.

The de minimis exemption is worked out having regard to the total of the attributable incomes of all trust estates for which a taxpayer is an attributable taxpayer. The de minimis exemption will be satisfied if the total of the attributable incomes of all the trust estates is equal to or less than the lesser of:

$20 000 or

10 per cent of the total of the net incomes of those trust estates.

If these tests are satisfied, the attributable income of broad-exemption listed country trust estates will not be included in the assessable income of the attributable taxpayer. The attributable income from the non-broad-exemption listed country trust estates would still be included. “

New Zealand is a broad-exemption listed country, so the de minimus rule applies to income of the trust. There will be no need to report income in an Australian resident’s tax return where the above criteria apply.

There is another legal article that I have found that offers different options and interpretations, so I may be able to post some better news shortly.

Christopher Raynal
Master Accountants Group Limited
PO Box 46018 Herne Bay
Auckland New Zealand
Ph +64 9 360 3259
Fax +64 9 360 2180
http://www.masteraccountants.co.nz

I am so confused/[buz2]

“I should be content to look at a mountain for what it is and not as a comment on my life” D. Ignatow

Hi Chris,

I can see there still being a problem if there are no NZ beneficiaries to distribute the capital gains to. If you tried to retain all capital gains in the trust, then it would likely all become attributable income, and would also likely form the majority of the trust’s net income. So the attributable income, even if less than $20K, would not be less than 10% of the total net income.

I think this means that essentially 90% of the trust’s income (including gains) would have to be distributed to beneficiaries (the main method of making it exempt from attributable income) to enable the remaining income to be less than 10% of the total.

One thing that concerns me about different legal interpretions is that unless there’s a clear court ruling on the matter, which I think would then be available in the ATO legal database, I could be the one forking out for a court case to establish the ruling (and quite possibly losing!).

Perhaps one way to partly get around it might be to transfer the money by stealth. On each trip to NZ, each person take out $9,999 in cash in a brown paper bag and deposit it in NZ. After a few trips over, there’d be enough for a deposit with no official funds transfers [whistle].

Regards,
GP