NEW ZEALAND Law and Practice Contributed by: Brent Wicks, Violet Yu, Jonathon Russell and Sandy Chen, Cone Marshall Limited
45% tax. Offshore investments over NZD50,000 may trigger Foreign Investment Fund (FIF) tax (5% imputed income). In response to the above-mentioned tax consequenc - es, below are some planning opportunities to con - sider. • New Zealand foreign trusts can be an effective ownership vehicle for non-residents to hold off - shore assets, tax-free. • Trusts can be effectively paired with limited part - nerships, improving offshore flexibility. • In circumstances when a settlor wishes to become a New Zealand resident, the four-year transitional residency period can be used to avoid non-com - plying status, avoiding 45% tax. Consider distributing income to lower-taxed benefi - ciaries (applying the beneficiary’s marginal tax rate rather than the flat trustee rate of 39%). However, this is subject to the minor beneficiary rule, which imposes the trustee tax rate on income distributed to benefi - ciaries under the age of 16 if it exceeds NZD1,000 per year from trusts settled by related parties. 3.4 Exercising Control Over Irrevocable Planning Vehicles New Zealand has enhanced irrevocable trusts to allow flexibility and settlor influence, while ensuring that the protection offered by a genuine and well-administered structure is not lost. Historically, settlors could not benefit from trusts, prompting the use of mirror trusts. Reforms in the 1980s and the (now repealed) Trustee Act 1956 allowed settlor-beneficiaries. In Clayton v Clayton [2016] NZSC 29, the Supreme Court upheld a trust despite extensive settlor powers but treated them as a divisible “bundle of rights” in a relationship dispute, settled without appeal. This highlights the balancing act: settlors can retain powers, but excessive control risks claims and accusations of a “sham”. The Trusts Act 2019 codifies the Saunders v Vautier principle (Section 122), enabling unanimous adult beneficiaries to vary or terminate trusts, and permits court-approved changes (Sections 123–125). Trust
deeds can include powers to amend the terms of the trust deed, change the class of beneficiaries, and appoint/remove trustees. Assigning some or all of these powers to those in fiduciary roles (ie, independent trustees, protectors, guided by a memorandum of wishes), can be effective in ensuring the trust remains adaptable whilst inten - tionally limiting the control the settlor holds over the structure. Trusts are widely regarded as the most popular meth - od for asset protection in New Zealand due to their versatility, robust legal framework and ability to shield assets from various risks. It is estimated that New Zealand has between 300,000 and 500,000 trusts, against a population of approximately five million. 4.2 Succession Planning Trusts are often regarded in New Zealand as the cor - nerstone of family business succession planning, with the “dual trust structure” being popular for holding business interests, safeguarding family assets and providing a clear mechanism for transferring wealth and control across generations. A well-considered succession plan can optimise tax and minimise the potential for inter-family conflicts. The dual trust structure typically takes the form of a “business trust”, which holds shares in a trading com - pany or other business interests, sitting alongside a separate “family trust”, which holds personal assets and can benefit family members directly (especially when doing so from the business trust is not desir - able). 4. Family Business Planning 4.1 Asset Protection For blended families, multiple family trusts can be formed and appointed as beneficiaries of the busi - ness trust, if deemed necessary or prudent, allowing for equitable distributions across the family and mini - mising the potential for disputes to arise.
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