Application of DTA’s to trusts

For those of you who deal with client’s trusts which have cross-border connections (e.g. trustees/beneficiaries resident in more than one jurisdiction), then the recent release of a draft issues paper on the topic of ‘Income tax – trusts and the Australian–New Zealand Double Tax Agreement’ will no doubt be of interest to you.

Referenced IRRUIP15, the document has been released in response to questions to IR to clarify the tax treatment of trusts under the network of double tax treaties that New Zealand has entered into with other countries. What better place to start therefore, with the NZ/AUS DTA considering the number of kiwi’s who presently live on our fourth island.

The Issues Paper addresses seven specific questions being:

• What is the taxable entity in a trust context?
• Is it the residence of the trustee or the settlor, or both, that determines eligibility to the benefits of the Aus–NZ DTA?
• Does the Aus–NZ DTA require that a trustee be treated in a separate capacity from their personal or private capacity?
• How does the residency tie-breaker provision deal with two or more trustees of mixed residency and is the test only that for non-natural persons?
• What is the scope of the requirement to recognise income derived by or through a trust that is treated as resident in one country as the income of a beneficiary who is taxable on it in the other country?
• How does the obligation in the question above sit with the rights of each country to tax its own residents?
• What is the extent of the obligation to grant a tax credit for tax paid in the other country by either the trustee or a beneficiary?

IRRUIP15 is 74 pages in length, so potentially a good pre-bedtime read, and if you are still awake at the end and wish to make any comments to those responsible for its drafting, then you should do so no later than 1st March 2021.

This article from the 'A Week in Review' newsletter was originally published Monday 11th January 2021. If you have any questions or would like a second opinion on any national or international tax issues, please contact me [email protected]. 

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