What is a New Zealand Exempt Trust?
New Zealand Exempt Trusts, or NZETs for short, are an international wealth management tool, and can be useful in many situations. NZETs are available to settlers who are not New Zealand resident. This article gives a brief general introduction to how they work, and where they can be of use.
Wealth transfer and other benefits of Trusts
The main benefits of trusts are that they allow funds to be held in one jurisdiction, when beneficiaries may be in several different jurisdictions. Further, trusts can provide for inter-generational wealth transfer in a much better way than wills can, or lifetime gifts.
What is a New Zealand Exempt Trust?
Internationally, trusts are taxable in the country of residence of the trustees. However, New Zealand’s trust rules differ from the international norm, because they are taxed in the country of residence of the settlor. This mismatch between New Zealand and the rest of the world makes New Zealand Exempt Trusts potentially useful as a mechanism for ensuring that tax is paid only once on income. However, trusts should not be primarily used as a tool for tax planning, rather, it is their significant wealth management potential that should be the driver of the establishment of an New Zealand Exempt Trust.
For example, a high net worth individual resident in Jersey wants to establish an offshore trust. That individual could use a New Zealand Exempt Trust to do so. The trust would be set up with a New Zealand resident trustee company, and would have only offshore sourced income. The beneficiaries would all be outside New Zealand. In these circumstances New Zealand would not tax any income derived by the trust, and it may be that the beneficiaries are only taxed on income once it is paid to them. The settlor is unlikely to be taxed in Jersey. Other jurisdictions, Australia, for example, have rules that will tax settlors on any income accrued in the foreign trust.
A New Zealand Exempt Trust structure looks like this:
The New Zealand tax authorities impose disclosure requirements on the New Zealand resident trustee. The main information to be disclosed is the name of the trust, the details of the trustee, and whether the settlor is resident in Australia. There are also record keeping requirements, but a well-managed trust should comply with these in any event as a matter of good practice.
Parry Field Lawyers provide legal advice on a range of tax matters and are able to assist you with any tax questions that you might have. Please contact Grant Adams at Parry Field’s Christchurch office (348 8480) for help with tax matters.
Please note that this article is not intended to be legal or investment advice, and is only intended as a general guide. Reliance should not be placed on this article where any specific issues are concerned.
