NEW ZEALAND Trends and Developments Contributed by: Brent Wicks, Violet Yu, Jonathon Russell and Sandy Chen, Cone Marshall Limited
Trust Tax There is currently a requirement for trustees of New Zealand domestic trusts to submit information about the settlors, distributions and beneficiaries of the trust to the Department of Inland Revenue on an annual basis as an anti-tax avoidance measure. Certain cat - egories of trusts are exempted, including estates, charities and foreign trusts. This tax policy was introduced as a response to the enactment of the Taxation (Income Tax Rate and Other Amendments) Act 2020, which added a new top per - sonal income tax rate of 39% while the trustee income tax rate remained 33% at the time. The further disclo - sure would assist the Department of Inland Revenue to assess and determine whether trusts had been set up to avoid the highest personal income tax rate. The new disclosure requirements have driven up com - pliance costs for New Zealand trusts. Many trusts were wound up because the cost to maintain the trust no longer supported the value of the trust perceived by some private clients. On 1 April 2024, the trustee income tax rate also changed to 39% to match the top personal income tax rate. The Department of Inland Revenue conduct - ed a review of the implementation of the disclosure requirements and confirmed that it intends to keep the disclosure regime, but improvements may be made to make compliance less costly. The legislative changes will likely come through in time for the 2025 trust tax returns. Foreign Investment Fund Rules The Foreign Investment Fund (FIF) rules impose an income tax on New Zealand residents holding invest - ments in FIF, whether or not such investments gener - ate income or gains. A FIF includes an offshore invest - ment that is a foreign company, foreign unit trust, foreign superannuation scheme or an insurer under a foreign life insurance policy. A FIF does not include an income interest of 10% or more in a controlled foreign company. The FIF rules generally tax on 5% of the opening market value of the attributing interests in foreign investments.
estate. This issue was addressed in A, B and C v D and E Limited as Trustees of the Z Trust [2024] NZSC 161, where the court could not revoke the trust trans - fer due to insufficient legislative support. Part of the recommendations highlighted that the new succession laws intend to include the indigenous peo - ple of New Zealand, te ao Māori perspectives such as requiring courts to consider Tikanga Māori when exercising its powers. Tikanga Māori, in short, encom - passes the customary practices, protocols and values of the indigenous people of New Zealand. Trust and Relationship Property In 2016, the case of Clayton v Clayton [2016] NZSC 29 set a precedent that the rights and powers individuals have in relation to a trust may be considered relation - ship property and divisible upon the breakdown of a couple’s relationship under the Property (Relation - ships) Act 1976. This was a controversial judgment which sparked many discussions and criticisms. Late 2024, the Supreme Court case, Cooper v Pin- ney [2024] NZSC 181 provided new insights to the principles held in Clayton v Clayton . In this case, Ms Cooper challenged Mr Pinney’s trust and made the claim that Mr Pinney’s powers in relation to his family trust is relationship property divisible pursuant to the Property (Relationships) Act 1976. The Clayton v Clayton case was distinguished by the Supreme Court in Cooper v Pinney . The Court found that Mr Pinney’s rights and powers in his family trust were more restricted in comparison to Mr Clayton’s which were described as tantamount to ownership. Therefore, Ms Cooper’s challenge was unsuccessful. This effectively set limitations as to how far reaching the principles in Clayton v Clayton can be applied. This new development showed favourability to the integrity of a well-structured trust but also highlights the nuanced nature of asset planning and trust struc - turing, especially the importance of careful considera - tions about how the rights and powers of the settlor should be structured to avoid potential threats against the trust.
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