What is it?
Repeal of compliance cost intensive rules.
Thoughts?
When the previous Labour Government increased the top personal tax rate to 39% after the 2020 election, it surprised taxpayers by also implementing a complicated set of disclosure rules for trusts.
These were introduced to assess whether trusts were being used to mitigate the impact of the top personal tax rate. The trust disclosure rules came without consultation and were widely criticised by the tax community as being nonsensical, extraordinarily expensive to comply with, and it wasn’t at all clear what purpose all the information would serve. The fact the disclosures came with 48 pages of detailed instructions tells you a lot about the rules.
Earlier this year Inland Revenue completed a post implementation review of the rules, which suggested some refinements. With the trustee tax rate having been increased to 39% as part of Budget 2023, the need for the disclosure rules fell away, and the Government has announced these rules will now be repealed.
The compliance costs for trustees were never able to be quantified but a survey estimated the average cost was between $784-$1,400 in the first year. With New Zealand having around 245,000 trusts, it is fair to say the compliance costs have been massive, and Inland Revenue would have allocated a lot of resources to collecting and processing the information (the administrative savings have not been quantified).
Part of the rationale for repealing the rules is that the Inland Revenue never needed special rules to collect the information, they already had sufficient powers to request information. It is expected that while the extensive trust disclosures will be going, there will still be some information which will need to be provided as part of the tax return process – hopefully information which is more streamlined and relevant.