After the introduction of the Trust Disclosure rules in March 2022, in November 2023 Inland Revenue released a high-level summary of insights from the first year of reporting.
The stated purpose of the trust disclosure rules was to provide insights on how trusts are used, and to ensure compliance with the 39% individual tax rate.
A recurring theme in the report was the level of errors; not surprising given the complexity of the disclosure rules and it being the first year. Of the 226,000 trust settlor details received, errors included:
- 49,000 trusts that provided no settlor details;
- 450 instances of beneficiary distributions to minors that exceeded $1,000;
- 300 trust beneficiaries who owe student loans that failed to disclose their trust distributions, understating their repayment obligations;
- 1,400 Working for Families recipients that failed to disclose distributions from trusts;
- 500 instances where income had been allocated to tax-exempt beneficiaries even though the distribution had not been paid; and
- 3,500 trusts that retained trustee income despite having ceased in the same year.
As a result of the information gathered greater scrutiny of trust tax affairs is expected, especially as the Government has provided additional funding to complete audits and investigations.