Law Commission Questioning Trust Rules

December 20, 2010 New Zealand FinanceNew Zealand Taxation

113/365: Flippin' coinsThe New Zealand Law Commission is investigating the widespread use of trusts in New Zealand, the entities’ potential for tax evasion, and several proposed legislative changes to trust regulations.

On December 20th the New Zealand Law Commission published Some Issues with the Law of Trusts in New Zealand: Review of the Law of Trusts an issues paper that seeks to draw public comment on trust laws. The paper is an initial stage of a comprehensive Law Commission review of the entirety of national trust legislation.

Commissioner George Tanner explained the Commission’s interest in trusts, saying, “We’re interested in why people set up family trusts, and whether there should be limits on their use.” He went on to explain that New Zealander’s seem disproportionately likely to utilize trusts, with an estimate one out of every eighteen taxpayers utilizing trusts. Comparatively, the ratio in Australia is a much lower one out of thirty four, one in 294 in the UK. The Law Commission fears that with such a large penetration of trust use, there is likelihood that at least a small proportion of trusts could be used to hide wealth or assets. The Commissioner also suggested that a portion of trusts are being established solely as a means to bypass government benefit income tests. The government commissioned Tax Working Group recently estimated that New Zealand tax authorities loose approximately NZD300 million per year due to tax evasion committed through trusts.

The paper proposes several legislative changes to trust laws that would effectively impose some limits on their functionality. The Commission hopes to hear from “…as broad an audience as possible,” on the alterations potential effects or backlashes.

The discussion paper can be found on the Law Commission’s website.

Photo by Pauli Antero