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Inland Revenue

Tax Policy

Whether a trustee of a head-trust is a settlor of a sub-trust



Section HC 28 of the Income Tax Act 2007 lists a number of activities of a person that result in that person being treated as a settlor of a trust for tax purposes. A person is treated as a settlor of a sub-trust if they are a settlor of a head-trust and a trustee of that head-trust settles property on the sub-trust.

However, by virtue of section HC 27(2) of the Act, the trustee of the head-trust may be treated as a settlor of the sub-trust.

It is therefore arguable that the trustee of a head-trust could be treated as a settlor of the sub-trust, as they are transferring value to the sub-trust.

Section HC 27(2) should be amended so that it does not apply to treat a trustee as a settlor in circumstances where the trustee transfers value to a sub-trust as a result of a settlor of a head-trust settling a new trust.


Officials note that this issue is primarily related to foreign trusts. A trust is a foreign trust in relation to a distribution if no settlor is resident in New Zealand. Foreign trusts are not taxed on their foreign-sourced trustee income. The review of the tax treatment of foreign trusts will be included in the Government’s tax policy work programme as part of the work on base erosion and profit shifting.


That the submission be declined.