Trading Trusts: Beware

 

Deloitte Limited is also the trustee of the Deloitte Trading Trust, a New Zealand trust that currently employs our staff and holds Deloitte’s assets. From 1 June , it .

There are no changes affecting staff or contact details. We further refer you to our Disclaimer. Regulation of trusts Chapter 9 - Registration and reporting requirements Introduction Current regulation of trusts in new zealand Why might a register be needed? If you wish to discuss Trading Trusts and Companies , or the best legal vehicle for your business please contact Peter Smith by email on peter.

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(d) since trust property is excluded from assets that can be used to satisfy the claims of creditors of the corporate trustee, the trading trust may be a useful mechanism .

The appeal is obvious - all the cosmetic advantages of appearing to be a tax paying entity, with no "tax haven" taint, with the additional bonus of paying little or no tax. Recent OECD moves against tax havens have not affected most on-shore tax effective structures. The New Zealand offshore trust allows assets to be owned and managed by a company in a reputable, relatively high tax-paying jurisdiction, with a significant network of tax treaties, but without tax.

New Zealand is a sovereign state in the South Pacific. In addition to political stability, it enjoys economic prosperity. New Zealand has a developed legal system, with respect for the rule of law, an independent judiciary, and a substantially statutory system of law. The New Zealand "offshore" trust is a misnomer. The "New Zealand foreign trust" is in fact a New Zealand trust, which usually has although need not have a New Zealand trustee, and may have but need not have New Zealand resident beneficiaries.

The trust is an integral part of the legal system of New Zealand, as it is with most jurisdictions deriving their legal system from the common law and equity. However New Zealand has developed its own approach to the taxation of trusts, based not on the residence of the trustee or of the beneficiary, but on the source of the trust funds - that is, taxation based on the residence of the settlor. This provides tax planning opportunities.

Since the New Zealand tax legislation has specifically codified the New Zealand "offshore" trust - a New Zealand trust often with New Zealand resident trustees , settled by a settlor or settlors none of who is resident in New Zealand.

The New Zealand offshore trust is not subject to New Zealand tax, except on income with a New Zealand source - even though the trustees are tax residents of New Zealand, and even if some or all of the beneficiaries are New Zealand resident. For beneficiaries of a New Zealand offshore trust the New Zealand tax rules are also interesting. A trust beneficiary who is not resident in New Zealand will only be taxed on income with a New Zealand source, and will not be taxed on capital profits or gains even those with a New Zealand source.

Foreign income and all capital gains can be distributed free of New Zealand tax - free of tax on the trustee, free of tax on the beneficiary. Income with a New Zealand source will be subject to normal New Zealand income tax rules, including any protection from income tax that double tax treaties may provide. Capital gains, wherever their source, are not subject to New Zealand tax. The same rules would also apply to a trust established under New Zealand law but which does not have New Zealand resident trustees, or has some resident and some non-resident trustees, provided no settlor was resident in New Zealand.

As the taxation status depends on the residence of the settlor or settlors, a New Zealand resident including a beneficiary may be a trustee of the trust without prejudicing the tax status. New Zealand offshore trusts, which are "foreign trusts" in terms of the New Zealand legislation, are not specifically deemed to be non-resident in the legislation.

Residence of the trust has no meaning in the Income Tax Act - the residence of the settlor or settlors is the determining factor as to whether the trust is a foreign trust or not. It even has a treaty with Finland. This raises the interesting possibility of a New Zealand offshore trust being a resident of New Zealand for the purposes of a double taxation treaty, with the protection this brings, and yet not being subject to tax in New Zealand. Initial Consultations are available by Skype or Tele-Conference.

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