IR6 Who needs to file an IR6 return?

If you are a trustee of a trust, or the executor or administrator of a deceased person’s estate you need to file an IR6 to account for income the estate or trust earns.

In this guide Inland Revenue use “trustee” or “you” to refer to the person or persons administering an estate or trust. The word trust also refers to estates unless Inland Revenue have stated otherwise.

This guide provides general information about how to complete the IR6 return. There are references throughout the guide to our other publications which may help you. If you still need help please call Inland Revenue on one of the telephone numbers listed under “Services you may need” at the back of this guide or contact a tax advisor.

How income of an estate or trust is taxed in general

In general, income of an estate or trust will be subject to income tax in New Zealand if it has a source in New Zealand regardless of the residency of the trustee.

The trustee is also liable for New Zealand income tax on income derived outside New Zealand where any settlor of the trust is resident in New Zealand at any time during the income year, or if the estate has a New Zealand trustee and the deceased was resident in New Zealand.

Allocations

Income of a trust is either trustee or beneficiary income. The trustee can allocate income as beneficiary income, provided the income either:

vests absolutely in the beneficiary in the income year, or
is paid or applied for the benefit of the beneficiary during that income year or within a specified period from the end of the income year. For more information see IR6 Question 18 Income allocation#Question18A–Beneficiaryincomeexcludingminorbeneficiaries.

Trust income allocated as beneficiary income is taxable income, except as covered below under the special rules for allocations to minor beneficiaries.

Distributions

In addition to allocating beneficiary income, a trustee, a trustee can make distributions to beneficiaries. A distribution can be made up of:

tax-paid profits (trustee income or beneficiary income)
capital gains of the trust
corpus of the trust (the capital contributed to set up the trust)
(for a foreign trust) non-taxed profits such as foreign-sourced income.

The tax position of a distribution from a trust depends on the type of trust making the distribution and the residency of the beneficiary. See pages 10 to 12 of this guide.

Generally, a distribution to a New Zealand resident beneficiary from:

a complying trust is not taxable
a foreign trust is taxable, to the extent it is not part of the corpus or capital gains
a non-complying trust is taxable at 45 cents in the dollar, to the extent it is not part of the corpus.

Allocations of beneficiary income to a minor

A minor is defined as a New Zealand resident under the age of 16 years on the balance date of the trust.

Allocations of beneficiary income that the minor beneficiary rule applies to are treated as trustee income. This means they are:

taxed at 33%
included in the trustee’s tax calculation in the IR6 return, and
included in the trustees’ provisional tax calculations.

The minor beneficiary should not include this income in their Individual income tax return (IR3).

Exceptions to the minor beneficiary rule

The following exceptions allow income allocated to a minor beneficiary to be treated as beneficiary income if the income:

is derived by a minor for whom a child disability allowance is paid under the Social Security Act 1964, or
is derived directly from either a group investment fund, the Maori trustee or a Maori authority, or
the amount allocated to the minor from the trust is $1,000 or less in an income year.

If the $1,000 threshold is exceeded, the total income allocated to the minor beneficiary is taxed as trustee income. For example, if a minor beneficiary is allocated $1,200, the total allocation of $1,200 is taxed at 33%. The general anti-avoidance rule may apply if a person establishes multiple trusts to increase the number of exemptions. See Tax Information Bulletin (TIB) Vol 19, No 4 (May 2007) for further information.

There are further exceptions to the minor beneficiary rule that relate to the nature of the settlements on the trust. For further information, please see our Tax Information Bulletin (TIB) Vol 13, No 5 (May 2001).