Finance and Expenditure Committee
MEDIA RELEASE
Qualifying trust status amendment included in taxation bill
The Finance and Expenditure Committee has recommended to the House that an amendment to the definition of "qualifying trust" be added to the taxation bill currently before Parliament, committee chairperson Clayton Cosgrove announced today.
The amendment corrects a problem that could arise as a result of a proposed interpretation by Inland Revenue on the tax treatment of trusts whose trustees have underpaid income tax in the past and later make a distribution without rectifying the underpayment.
The revised interpretation of the law would see those trusts losing their status as qualifying trusts for the period that the underpayment was not rectified, and distributions made in the period being taxed at a rate of 45%.
"What could happen in practice is that a small underpayment of tax by a trustee may result in disproportionate penalties for the beneficiaries of the trust." Mr Cosgrove said. "For example, it could mean that in the case of a home owned by a family trust, an underpayment of tax of $100 several years ago by the trust could result in the beneficiaries living in the home being taxed at a rate of 45% on the value of that accommodation for the period, when they normally would not be."
"The proposed amendment will resolve the problem by allowing a non-qualifying trust to become a qualifying trust retrospectively if all its income tax obligations are satisfied."
"The Committee has recommended that this amendment be included in the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill," Mr Cosgrove said.
Contact for further details:
Clayton Cosgrove (Chairperson) on (04) 470 6593 or
Peter Hurndell on (04) 04 471 9538 or [email protected]