GRA Blogs

Articles by Anna Loginova

Why even non-active trusts should prepare financial statements 2023

AUTHOR: Anna Loginova

POSTED: 21 April 2023

Views

As you are probably already aware, trusts now have more reporting requirements with the IRD. However, in some circumstances, trusts, especially family trusts, may have been made non-active with the IRD, which means there is no income to report (and no tax to pay).

Although a trust may not generate any income, and therefore may not be required to file an income tax return, it is still important to prepare financial statements for several reasons.

It is a mandatory trustee duty to retain the documents related to the trust, including records of trust property that identify assets and liabilities.
Beneficiaries have the right to know the financial position and financial performance of the trust, which provides transparency and accountability.
It allows the trustees to keep track of payments made on behalf of the beneficiaries (e.g. school fees).
The professional trustee of the trust can review the financial statements to ensure that the trust is being run properly and that they are meeting their professional trustee obligations.
Preparation of financial statements provides an opportunity to ensure that deeds of acknowledgement of debt and gifting, and any other relevant documents, are prepared, where appropriate.
It could be beneficial from a relationship property perspective in terms of setting a baseline for a client’s asset base prior to a relationship.
A trust that receives no more than $1,000 in passive interest or dividend income that has been subject to withholding tax at source, can be declared “non-active” and exempt from filing an income tax return. Again, even if exempt from the requirement for filing a tax return, preparation of financial statements to properly account for the income is prudent. If the passive interest / dividend income exceeds the $1,000 “non-active” threshold, a tax return needs to be filed with the IRD, and so the trust needs to be activated.
Preparation of financial statements is an effective means of record keeping, which is an important aspect of good governance and can assist trustees to manage the assets of the trust.
All major transactions are reflected in the financial statements, e.g. the purchase or sale of a new house, changes in trustees etc.

While not compulsory if a trust does not earn income, or has passive income below the $1,000 threshold, for the reasons outlined above, we consider it best practice for all trusts to prepare financial statements.

Please contact GRA if you would like to know more about completing financial statements for your trust, and we will be happy to provide you with a quote.

Request a Meeting

Anna Loginova
Partner

09 522-7955

[email protected]

© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

We were about to subdivide our section and needed property tax advice. Googled "who's any good" and GRA were in the top 3 on a few sites that recommended providers. We worked with Anthony Lipscombe. Very easy to deal with, comprehensive chat/ conversation that led to a written report by Anthony where his thinking was sharp, clearly communicated, coming at aspects from multiple points of view. i.e. he took time to make sure the reader (my wife and I) completely understood (in plain English) what he was saying. Highly recommended.

- Jason C, October 2023

Would you like to receive . .

. . tips, updates and useful information to help
protect your assets and grow your net worth?

Investing in residential property?

Put this at the top of your reading list.

If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.