New Zealand, along with over 100 other countries, has committed to the G20/OECD led Automatic Exchange of Financial Account Information in Tax Matters (AEOI for short). Jurisdictions implementing AEOI are required to impose reporting obligations, known as Common Reporting Standards or CRS, on their financial institutions. New Zealand did this last year through amendments to our tax legislation. New Zealand financial institutions and taxpayers now have obligations to comply with CRS requirements, with those failing to comply subject to penalties.
So, what does this mean for you?
For most people, the only difference will be when they go to open a new financial account they will be asked for their IRD number, to confirm where they are a tax resident, and other identifying information. They may also receive a request from financial institutions with whom they already have a financial account, to supply this information. You have a statutory obligation to supply this information. If a financial institution does not have this information, it may be required to report your account to Inland Revenue.
However, there will be a bigger impact on family trusts that derive more than 50% of their income from financial assets (e.g. shares and bonds) and have their portfolio managed by a financial institution, such as a share broker or investment adviser.
Inland Revenue is suggesting that trusts with professional trustee companies with trustees may also be a managed trust. Such trusts may fall within the definition of “financial institution”. Being a financial institution means that the trust has due diligence obligations and, depending on the outcome of the due diligence, reporting obligations. These reporting obligations may arise where the trust has non-resident settlers, non-resident beneficiaries, has borrowed funds from a non-resident, or otherwise has a non-resident controlling person.
If you are concerned your trust may be a financial institution for CRS purposes, get in touch with your local Findex adviser and they will arrange for a member of our specialist tax team to contact you.