TalkTax

Following on from the post on 23 October 2009 regarding tax consequences that can follow on from a variation of trust it is perhaps timely to consider whether something as commonplace as a variation in trust period could effect a fundamental variation.

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Recent publicity surrounding funding of local sports clubs following the decision in Travis Trust , highlights the difficulties that exist for sporting bodies that seek registration as a charity.

While many sporting bodies are registered as tax charities, the charitable status of many sports is as best unclear.

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The well publicised new Associated Persons Rules are due to come into force within the next week or two and already there is uncertainty about their application.  The rules are possibly the most complex part in the Income Tax Act, and what makes things worse is that they play a very important role in the taxation of some of the largest assets traded in New Zealand – i.e. real property.  It is therefore very important that everyone understands exactly what they are, and how to apply them.

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Unlike the naked Archimedes’s joyful exclamation, the recent exposé of the Eureka Trust comes as a more serious warning for those working in the charitable sector. Charities never need to bother with tax issues do they? Actually, yes…

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Straw men of both the literal and metaphorical kind have been employed in literature over the years. A straw man, although in the shape of a man, contains nothing but symbolically worthless straw.

The question must be asked, given the direction of current jurisprudence in New Zealand regarding effective control, whether trustees have become the equitable equivalent of men of straw.

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An interesting trend that we have noticed over the last six months or so is the increase in trust related inquiries from ex pat kiwi’s returning to New Zealand. Anecdotal evidence suggests that other accountants and lawyers are noticing this trend too. Often these inquires involve tax residence/ transitional resident issues and also involve questions of strategy around the operation of the New Zealand trust regime. For example, can I maintain foreign trust status in a lower tax jurisdiction, should I elect into the complying trust regime or should I consider resettling into a complying trust. As always the challenge is to ensure that the tax planning process starts before the migrant arrives in New Zealand (of course the transitional resident rules can provide some breathing space!).

It is also apparent that the new associated person rules combined with the settlor definition are going to heavily impact matters like foreign trust status and the tax liability of New Zealand based settlors in certain situations. We intend to address these and other issues in the trust seminars.

Staples Seminar