Tax Bites #8: Trust Ownership of Residence Triggers Tax Residency
About the Author:
MURRAY McCLENNAN
Director at Tax Central
A chartered accountant and a member of the International Fiscal Association and the Society of Trust and Estate Practitioners, Murray has over 30 years experience in tax.
A recent case, Van Uden v CIR, highlights the potential significance of a property owned by a trust being an individual’s permanent place of abode and thus triggering tax residency.
The taxpayer concerned spent eight months a year working at sea and spent time in New Zealand at a dwelling owned by the trustees of a trust settled by his wife. The taxpayer was also a trustee and discretionary beneficiary of the trust.
The High Court held that the dwelling was in fact a permanent place of abode. The reasoning included that the dwelling was available to him for use as evidenced by his established pattern of residing there when he was in New Zealand. It was convenient for the taxpayer to spend his shore leave with his wife. He also paid for maintenance of the property and used the address for electoral roll registration.
While the decision in this case is fact specific, it has important implications given the number of persons living overseas who are beneficiaries of trusts that have dwellings in New Zealand. The rights that can flow from being a beneficiary can provide Inland
Revenue with grounds to argue that trust-owned property is nevertheless a permanent place of abode for a person who occupies the property from time-to-time. Note, that the mere availability of the dwelling (abode) does not trigger tax residency.
Rather, there must be other factors that collectively create a permanent place of abode.
We are separate from the trust of which we are a trustee or a beneficiary. Yet, this case is a useful reminder that rights can flow from a trust to beneficiaries.
Hence, trust-owned property can be a permanent place of abode for a person who occupies the property from time to time as a discretionary beneficiary.
Inland Revenue targeting FBT
Several tax agents have reported that Inland Revenue has increased its FBT audit activity. Usually this is in the form of a risk review letter.
Often the key in deflecting Inland Review queries is to provide as much information “up front” as is possible. Inland Revenue tends to ask for detailed documentation, such as letters restricting private use of vehicles, log books, and proof of regular internal checks to show that the employer is monitoring use of vehicles.
It is relatively simple for Inland Revenue to cross reference vehicles included in FBT returns against fixed asset schedules and NZTA registration records. Remember, onus of proof is on the employer and not Inland Revenue.
Inland Revenue recently issued Interpretation Statement IS 17/07 Fringe Benefit Tax – Motor Vehicles. Which can be read HERE.
Director
Tax Central Ltd
027 244-5365
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