New Zealand Income Tax Law : Implications for Transactions with Trusts

New Zealand law provides for no special tax consequences on the formation of trusts. Transfers to trusts are taxable or non-taxable pursuant to the same rules that apply in respect of transfers to other people or entities. However, because there is more likely to be an element of gift in transfers to trusts than in transfers in general the former are more likely to be affected by rules that apply to transfers for inadequate consideration. Because of the absence of a general capital gains tax in New Zealand, transfers of non-business capital assets to trusts have no income tax consequences, although to the extent that there is an inadequacy of consideration gift duty is payable. The rules in the Income Tax Act 1994 that relate to depreciation of capital assets used in a business, trading stock, forgiveness of debt, gifting of property, land transactions, inheritance of land, deceased estates, and matrimonial agreements apply to trust transactions. Income that enjoys special tax treatment in New Zealand generally retains that character as it passes through a trust to a beneficiary