Here’s a letter from a trust you acted for 15 years ago
Thank you for being a trustee from 2001 to 2004. Even though you resigned in 2004, the trust hasn’t paid the GST on the land it sold last month, and you are now personally liable to pay this.
It’s no joke. This could happen. Worse, it could happen to you in your role as trustee or as a director of a trustee company
Section 6A (2) of the Tax Administration Act 1994 requires the IRD to collect the “highest net revenue practicable within the law.” This is despite anything to the contrary in any of the other Inland Revenue Acts. These Acts include:
• Child Support Act 1991
• Gaming Duties Act 1971
• Goods and Services Tax Act 1985
• Income Tax Act 2007
• KiwiSaver Act 2006
• Student Loan Scheme Act 2011
The Commissioner must also consider the importance of promoting voluntary compliance. That means you doing what you have to do, to comply with the law.
The Commissioner’s interpretation of this, for trustees, is very clear. If you don’t voluntarily tell them you have resigned, they will still chase you for the money.
Trustees are personally liable for the tax obligations of the trust. If a trustee resigns as trustee of a trust they must let the IRD know in writing, as soon as possible following the resignation, so the IRD can update their records.
If a trustee resigns and doesn’t let the IRD know, the IRD will still recognise them as a trustee which makes them liable for any tax obligations of the trust. The IRD will continue to recognise them as a trustee until they receive written confirmation.
For income tax and GST purposes, a trustee may be liable for any outstanding tax for the periods they were a trustee. This includes the period of time between their resignation and the IRD receiving confirmation of the resignation. This liability continues until the debt is paid.
If you have resigned as a trustee, but haven’t advised the IRD in writing, you are still liable to any income tax, GST or other taxes imposed by the Inland Revenue.
What about Directors?
It can be complicated, so the first step is to establish if you are:
• a director of a company with a tax liability, or
• a director of a company, acting as a trustee of a trust, which has a tax liability.
If you are acting in the role of trustee, the same notification provisions apply. You must let the IRD know that the corporate trustee has resigned as trustee.
If you are a director of a company with a tax liability, generally “All persons who are directors of the company at the time the arrangement is entered into are treated as agents of the company in relation to the tax obligation, and the liability is joint and several”.
In the situation where a company has been left unable to pay its GST or tax obligations, directors will continue to be liable, even after resigning, if an effect of an arrangement is that the company cannot meet a tax liability.
So, what does all this mean?
First call to action:
If you have ever resigned as a personal trustee of a trust, check with the IRD if you are still listed, in their system as a trustee. If you are, notify them immediately that you have resigned.
Second call to action:
If you have ever been a director of a trustee company that has resigned as a trustee, check with the IRD if that trustee company is still listed as a trustee in their system. If it is, notify them immediately that the trustee company has resigned.
These situations are like winning lotto. The chances are slim but tell that to the person who has just been served notice. Don’t let that be you.
If you require any additional guidance on these issues, contact your Findex adviser.