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NZ Trusts inadvertently caught by US tax regime

23 May 2016

The eyes of scrutiny are further afield than you might think – are you aware that the US Government is watching our income?  Trusts in particular are under the spotlight.

In 2014, the New Zealand Government signed an Intergovernmental Agreement with the United States, to share information under the Foreign Account Tax Compliance Act (FATCA).

The aim is to enable the US Government to track income earned by NZ entities (including companies, partnerships and trusts) in certain circumstances, such as where an entity has a controlling US person (US citizen or tax resident) or where it is managed by another NZ entity (such as an investment management company).

This regime requires all NZ entities to self classify, and, if required, register with the US Internal Revenue Service (IRS) and file annual returns. If this obligation isn’t met, financial penalties may be imposed.

Even if an entity can avoid the registration and reporting obligations, details of that entity may be passed to the IRS by its bank or investment manager, as these entities have their own FATCA reporting obligations.

A word of caution to those who have trusts with investments managed by an investment manager (including investments managed by a bank): you can be caught under the regime, even if there is no US person connection.

We recommend you seek specialist tax and legal advice to ensure that your trust’s obligations are met under the FATCA regime.

- Jess Holtom
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