The Taxation of Trusts : Part I

Trusts fit uneasily into any tax system. The beneficiary should be taxed on any trust income received; yet the trustee also receives income that is amenable to taxation. It would not be fair for the income to be taxed to both the beneficiary and the trustee, yet neither should the trustee escape tax on income that is not paid immediately to the beneficiary. This article is the first of three that examine the taxation of trusts in New Zealand under the Income Tax Act 1976. See also “The Taxation of Trusts: Part II” [1981] 25 New Zealand Current Taxation 134 and “The Taxation of Trusts: Part III” [1981] 25 New Zealand Current Taxation 168. The Act taxed income to the beneficiary if it met the test for “beneficiary income” in section 227, otherwise it was taxed to the trustee. This test is considered by Part I, which also describes how the tax result can turn on the peculiar characteristics of the trust used. Apart from some changes of detail, the position remains the same under the Income Tax Act 2007