The New Zealand Trust as a Vehicle for Foreign Investment

Sections HH 1 and HH 8 of the New Zealand Income Tax Act 1976 contain a special regime for the taxation of trusts. Income that is distributed by the trustee is taxed in the hands of the beneficiary, and income that is accumulated is taxed to the trustee. The mere fact of the trustee being resident in New Zealand does not attract tax, instead the regime takes a substantive, economics-based approach to the taxation of trusts. This article outlines the effects of this regime on people wishing to use a trust in New Zealand as a vehicle for foreign investment. As at 2009, the special regime for the taxation of trusts in the 1976 Act appears as subpart HC of the Income Tax Act 2007. Sections HC 17-HC 23 deal with the tax treatment of amounts that beneficiaries receive from a trust, sections HC 24-26 with the tax treatment of trustee income and sections 27-29 with the tax treatment of settlors. Section CV 13 makes it clear when these amounts will be “income”