Accounting and Tax

Are beneficiaries of your trust living offshore?

22 March 2019
2 min read

Your family trust is most likely a complying trust for tax purposes. Most trusts with settlors and trustees who live in New Zealand are complying trusts. This means that a distribution to a beneficiary, which is not a distribution of trust income, does not result in the beneficiary having a tax liability in New Zealand. For example, a beneficiary does not pay tax on a distribution which results from a complying trust selling part of its investment portfolio and distributing the proceeds to the beneficiary.

Because such a distribution has no tax consequences in New Zealand, it is easy to overlook the fact that there may be tax consequences in another country when the beneficiary receiving the distribution does not live in New Zealand. For example, distributions from New Zealand trusts to beneficiaries living in Australia or the United Kingdom will generally be taxable in those countries. It is also important to bear in mind that many countries have capital gains taxes, including Australia and the United Kingdom, so the distribution of a capital gain may still give rise to a tax liability in the country where the beneficiary lives. Furthermore, making distributions to beneficiaries living in another country may bring the trust to the attention of that country’s tax authority and could trigger tax obligations for the trust in that country. Finally, different countries have different rules around what is considered to be a distribution from a trust to a beneficiary. For example, a loan from the trust to a beneficiary can be considered a distribution that gives rise to tax consequences in some countries.

If you are considering making a distribution from your family trust to beneficiaries living outside New Zealand, contact your Findex tax adviser to ensure appropriate tax advice is obtained on the tax consequences of those distributions and an appropriate strategy put in place to manage those.