Reporting requirements for domestic trusts

The Trust Act 2019 introduced increased scrutiny over trusts and increased reporting obligations on trustees to account to beneficiaries, among other changes.

Further to these changes, additional reporting requirements for Trusts will be required. From the 2021–22 income year trustees will have to prepare financial statements and provide extra information with their income tax returns. An Order in Council is required to set the minimum requirements for the financial statements.

Trustees must prepare a statement of profit and loss and a statement of financial position to at least a special-purpose level. These statements, unless otherwise required by the Commissioner, must be included with the annual return for the 2021–22 and later income years. Inland Revenue will administer the setting of minimum requirements for these special-purpose financial statements.

Minimum requirements for these statements are still being considered, and are subject to current consultation. The minimum standards being proposed by officials include the statements should be based on the double-entry method of recording financial transactions and the principles of accrual accounting; the statements should include a statement of accounting policies and changes and the statements should include a reconciliation between the profit or loss in the statement of profit and loss to taxable income and a reconciliation of movements from opening to closing balances, on a line-by-line basis, of all beneficiary accounts.

Amounts may be disclosed using tax values, historical cost, or market values at the discretion of the preparer of the statements. Other requirements will be advised when the reporting requirements are finalised.

There will be partial relief from reporting for small trusts if the trustee has not derived annual income in excess of $30,000, or incurred annual expenditure in excess of $30,000, during the income year, and the value of total trust assets did not exceed $2,000,000 within that income year. Small trusts will still be required to disclose amounts in any forms prescribed by the Commissioner but in a lesser format.

If a trust does not derive assessable income, it is not required to file a return and the disclosure requirements do not apply.