The automatically generated IRD standard letter is a polarising tool in the IRD armoury. For most businesses these letters serve as timely reminders to tidy up internal reporting systems in preparation for the year-end financial reporting process. For others, it can be a source of confusion.
In addition, the gusto with which these letters are systematically marched out from IRD “command central” the day after the end of the financial year, and the now compulsory IRD registration for all residential property purchases, has resulted in some customers with no business activity being reminded to file returns.
In a common scenario Mr and Mrs Bloggs as trustees of a family trust, purchased a property for the beneficiaries of the trust to live in last year. In April this year a letter from IRD was received reminding them of their “obligation” to file a 2018 Trust Income Tax Return. Since the trust has no business activity, do the trustees really need to file a tax return?
If a trust did not receive any income during a financial year, a nil income tax return can be filed with IRD. This obligation needs to be fulfilled on an annual basis.
If a family trust did not carry out any income earning activity during the year, it may be possible to apply for non-active status. Having non-active status means that the trust will not be required to file income tax returns, until it has a business activity. In deciding whether a trust is non-active, IRD will not take into consideration bank, or administration costs that total $200 or less for the year, interest earned of under $200 on any trust bank account, reasonable fees paid to professional trustees to administer the trust, and expenditure that is incidental to the upkeep of a property owned by the trust, if they are incurred by trust beneficiaries.
In Mr and Mrs Bloggs case, an application can be made to IRD, in their capacity as trustees, to have the trust made in-active.
For more information on your filing requirements please contact your Hayes Knight Advisor.