Complying trusts (formerly qualifying trusts)
A complying trust is one which has been taxed in New Zealand on all its trustee income since the date it began. Complying trusts include:
- trusts settled by New Zealand residents with New Zealand trustees
- estates of people who were New Zealand residents when they died
- other trusts which have elected to become complying trusts.
A trust remains a complying trust if, since settlement of the trust, the trustees have satisfied all obligations in respect of its income tax liabilities.
A trust is not a complying trust if:
- the only trustee income is non-resident withholding income, or
- the trustees earn foreign-sourced income excluded from the meaning of assessable income.
If a trust ceases to meet the conditions for a complying trust in an income year, it will no longer be a complying trust – it will generally become a non-complying (formerly non-qualifying trust), for example, if the tax on a complying trust's trustee income is not paid, or if the trustees cease to be New Zealand residents.
Retaining complying status
A complying trust will not lose its complying status simply because one or more of the following apply, as there is no tax due on trustee income:
- the trust has no trustee income
- the only trustee income is tax-exempt
- the trust's deductible expenses or losses exceed the trustee income, so there is no tax payable on the net trustee income.
A trust will be a foreign trust if none of its settlors have been resident in New Zealand since the later of these dates:
- 17 December 1987
- the date the trust was first settled.
A trust will cease to be a foreign trust if it makes any distribution after a settlor becomes a New Zealand resident, or if a New Zealand resident makes a settlement on the trust.
Non-complying trusts (formerly non-qualifying trusts)
A non-complying trust is any trust that is neither a complying trust nor a foreign trust at the time it makes a distribution. It is generally a trust that has a resident settlor, has been established overseas with non-resident trustees, and has not been liable for New Zealand income tax since it was first settled. It also includes a trust where its trustee income has been liable to full New Zealand tax but the trustees have not paid the tax.
Courtesy of IRD