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Articles by Anna Loginova

Anna Loginova

Why even non-active trusts should prepare financial statements 2023

As you are probably already aware, trusts now have more reporting requirements with the IRD. However, in some circumstances, trusts, especially family trusts, may have been made non-active with the IRD, which means there is no income to report (and no tax to pay). 

Although a trust may not generate any income, and therefore may not be required to file an income tax return, it is still important to prepare financial statements for several reasons. 

  • It is a mandatory trustee duty to retain the documents related to the trust, including records of trust property that identify assets and liabilities. 

  • Beneficiaries have the right to know the financial position and financial performance of the trust, which provides transparency and accountability. 

  • It allows the trustees to keep track of payments made on behalf of the beneficiaries (e.g. school fees).

  • The professional trustee of the trust can review the financial statements to ensure that the trust is being run properly and that they are meeting their professional trustee obligations. 

  • Preparation of financial statements provides an opportunity to ensure that deeds of acknowledgement of debt and gifting, and any other relevant documents, are prepared, where appropriate. 

  • It could be beneficial from a relationship property perspective in terms of setting a baseline for a client’s asset base prior to a relationship. 

  • A trust that receives no more than $1,000 in passive interest or dividend income that has been subject to withholding tax at source, can be declared “non-active” and exempt from filing an income tax return.  Again, even if exempt from the requirement for filing a tax return, preparation of financial statements to properly account for the income is prudent. If the passive interest / dividend income exceeds the $1,000 “non-active” threshold, a tax return needs to be filed with the IRD, and so the trust needs to be activated. 

  • Preparation of financial statements is an effective means of record keeping, which is an important aspect of good governance and can assist trustees to manage the assets of the trust. 

  • All major transactions are reflected in the financial statements, e.g. the purchase or sale of a new house, changes in trustees etc. 

While not compulsory if a trust does not earn income, or has passive income below the $1,000 threshold, for the reasons outlined above, we consider it best practice for all trusts to prepare financial statements. 

Please contact GRA if you would like to know more about completing financial statements for your trust, and we will be happy to provide you with a quote. 

Anna Loginova
Anna Loginova
Client Services Manager
© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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