Non-complying trust’s distributions, excluding beneficiary distributions, can be taxed up to 45%, which is significantly higher than the tax rate for complying trust and foreign trust.
If a trust is a foreign trust, additional disclosure may be required where the trust has a New Zealand tax resident trustee.
Potential dual tax status (i.e. foreign trust and complying trust) of a trust can arise where the foreign trust has no New Zealand resident settlors. But the trust is also a complying trust if the trustees have paid tax on all their worldwide trustee income at the rate of 33%. The income tax treatment of a dual status trust and the foreign trust regime should be carefully considered to ensure the correct income tax position is taken and the filing and disclosure requirements are met.
Tax issues can arise when all the settlors of a New Zealand complying trust migrate overseas. Conversely, tax considerations may arise when the settlors of the foreign trust migrate to live in New Zealand.