New tax legislation will affect all trusts when they buy or sell property. Although the details are not yet final, the tax reporting requirements for trusts are already in effect.
Tax information required on all property transactions
As part of the settlement process for every property transaction, each vendor and purchaser must now report certain information to Land Information New Zealand (LINZ) who will then provide it to the IRD. There are a small number of exemptions to this rule, but in general, this reporting requirement will apply in most situations where trusts are involved.
- One compulsory item to be reported is each party’s IRD number.
- Where a trust is a party to the transaction, the trust must have an IRD number.
- The transaction cannot settle without the tax information supplied to LINZ.
Your trust may already have an IRD number, and if so, you do not need to do anything further.
If your trust does not have an IRD number, we suggest that you apply for a trust IRD number. You may ask your accountant to assist with this, or you can apply online to the IRD by clicking here.
As the IRD is now receiving a large number of applications for IRD numbers, there is a significant waiting time for allocation of new numbers. For this reason, we suggest that you apply now, rather than waiting until your trust is buying or selling property.
Additionally, when the trust enters into an agreement for sale and purchase, we suggest that you schedule the settlement date only after considering the new tax reporting requirements, allowing enough time for parties to obtain the necessary information. And, of course, we further suggest that you let us review the agreement before the trustees sign, to ensure your position is protected.
An alert about other new tax legislation
You may also be aware of other new tax legislation which is expected shortly.
In general, it will provide for taxing the gain made on the sale of residential property which is not the vendor’s main home if the agreement to sell the property is within two years of the purchase. This is commonly referred to as the Bright Line test.
This legislation is not yet settled, but it is clear that the IRD intends to focus on residential property sales within two years.
If you have any questions about your trust’s position in relation to the new tax legislation, or about an agreement for sale and purchase involving your trust, please get in touch with our Trusts & Asset Planning team.