The days of a regulatory light touch for foreign trusts in New Zealand are swiftly drawing to a close with a raft of new compliance obligations being proposed by the Government this week.
Finance Minister Bill English and Revenue Minister Michael Woodhouse jointly announced they will adopt all of the recommendations from the Shewan Inquiry that was instigated following the uproar created by the leak of documents sourced from Panamanian law firm Mossack Fonseca.
Readers who have followed this saga will recall that the inquiry by tax academic and former PwC chairman John Shewan concluded that our existing rules were wholly inadequate in the modern world. Consequently a substantial overhaul (if not a complete rebuild) of the rules was recommended to preserve our international reputation as the global fight against money laundering and aggressive tax practices continues to gain momentum.
Parliament will work through the first stage of legislative change next month with a tax bill that includes the following measures:
In a related move lawyers and accountants will be fast-tracked into the anti-money laundering and terrorism financing rules, although further work is required by officials before those changes come into effect sometime next year.
What does this mean on the ground?
New migrants will be subject to a grace period so they have sufficient time to work through these issues in a measured fashion. Although we have seen little detail in this respect, we assume the grace period will be substantially the same as the exemptions and concessions that are available under our transitional residency rules.
On that basis we also assume the same concessions will be available to Kiwis who are considering a permanent return to New Zealand after a long period of non-residency.
While we expect more details to become public very soon, recent migrants who have an interest in an offshore trust of any type (including a testamentary trust or estate) would be well advised to seek professional assistance with these matters if they have not already done so.
Unfortunately this area of tax law is technically challenging and the international dimension only adds to the complexity that can exist. Notwithstanding that the bottom line is that a proactive approach will go a long way towards avoiding the hefty tax costs that can arise from unwitting oversights and unintentional mistakes.
Disclaimer – While all care has been taken, Johnston Associates Chartered Accountants Ltd and its staff accept no liability for the content of this newsletter; always see your professional advisor before taking any action that you are unsure about.