It’s a common scenario; the parents have a family trust in New Zealand which has accumulated wealth, and one or more of the children decides to call Australia home. The parents might have the resources (and willingness) through the trust’s assets to help fund their child into a property in Australia, and/or to assist with the day-to-day costs of raising a young family there.
But, these support arrangements can create significant tax implications for those beneficiaries living in Australia.
Differences in New Zealand and Australian tax treatment of trusts
For trustees of New Zealand trusts and their beneficiaries, the key risk lies in the difference between the Australian and New Zealand tax treatment of trust distributions and payments.
What may be standard trust accounting practice in New Zealand (and what makes sense from a New Zealand trust planning perspective) could trigger unintended Australian tax consequences. Capital distributions are a key well-understood difference in each country’s tax rules (with Australia’s capital gains tax regime, absent in New Zealand). But in many situations even the gifting or a loan of trust funds/assets can also trigger Australian tax issues.
The ATO may treat the entire amount transferred or loaned to the beneficiary as assessable income.
Section 99B: A key Australian tax provision
New Zealand trusts with Australian resident beneficiaries are increasingly facing scrutiny under Australia’s tax regime, including under Section 99B of the Income Tax Assessment Act 1936 (ITAA 1936). Section 99B is designed to ensure that Australian tax residents are taxed on amounts received from foreign trusts that have not previously been subject to Australian tax. It applies broadly to any trust property paid to or applied for the benefit of an Australian resident beneficiary. There is an associated tax anti-avoidance provision (section 99C).
Australia also has transferor trust rules which can apply if an Australian resident contributes property to a foreign trust. These rules are less commonly relevant to long-standing New Zealand family trusts established by parents, but could apply if assets are injected into the trust after the beneficiary becomes an Australian resident.
Exemptions and the Burden of Proof
There are some exemptions that may provide relief, including Australia’s temporary tax residency regime and the ability to carve out anything distributed which represents the corpus (original capital) of the trust (as opposed to accumulated income). The burden of proof lies with the Australian beneficiary, who must provide documentation tracing the source of the funds. This can be complex, especially if the trust has a long history or lacks detailed records.
Detection risk is increasing as well; distributions to Australian bank accounts are often flagged by AUSTRAC and shared with the ATO. This can lead to information requests and, if not properly addressed, assessments at marginal tax rates – potentially up to 45%.
How Australian tax can apply to New Zealand trust distributions
John’s parents have a New Zealand family trust. John has moved to Australia and is living with his Australian partner.
The trustees decide to advance John $2 million from the trust to help him purchase a house in Australia. In New Zealand, this is often documented as an interest-free loan to John from the trustees, which does not generally create any New Zealand tax implications. It is often tidied up via a tax-free distribution of capital to clear the loan at some stage well down the track.
However, under Australia’s tax rules (Section 99B of the ITAA 1936), the $2 million ‘loan’ could be treated as assessable income for John. A distribution of capital can also have tax implications in Australia.
Unless John can prove the payment came from the original trust capital (corpus) and not from accumulated income, the ATO may assess the full $2 million at John’s highest marginal tax rates. At the top marginal rate of 45%, this could result in an Australian tax bill of up to $900,000.
Trustee and executor residency
Another important factor to review is the tax residency of the trustees and the proposed executors of a New Zealand estate. Where a trustee or executor of a New Zealand trust or estate relocates to Australia and continues to exercise control, this can create a tax residency risk for the trust or estate in Australia, potentially exposing the trust/estate’s assets to the Australian tax regime including capital gains tax.
Best practices for trustees and beneficiaries
- Gathering and maintaining documentation: It is critical to maintain clear records of trust income, corpus, and distributions
- Seek professional advice: Before making distributions to Australian residents, consult with tax advisors familiar with cross-border trust taxation issues
- Consider a possible restructuring: If the beneficiaries of the trust are intending to remain in Australia, reviewing with your legal, accounting and tax advisors whether a New Zealand trust structure is the right succession vehicle long-term would be prudent
Penalties and compliance risk
Failure to disclose foreign trust receipts in an Australian tax return can expose beneficiaries to significant penalties. The ATO may impose administrative penalties of up to 75% of the shortfall tax, plus the general interest charge (GIC). Given AUSTRAC reporting of cross-border transfers, proactive disclosure and correct reporting is essential to avoid audit risk and penalties.
Final word
Support from a New Zealand family trust can be enormously valuable, but without careful planning it may leave Australian beneficiaries facing tax bills approaching half the amount received. Because of the complexity of sections 99B and 99C, potential attribution rules, loan documentation requirements and trustee residency risks, it’s critical to get cross-border tax advice before moving funds across.
How we can help
Nexia Australia works closely with tax experts within the Nexia New Zealand network, and is well positioned to provide advice around trusts and cross-border tax issues.
We can help you navigate these complex issues and ensure you’re well-positioned to avoid unintended tax consequences.
Talk to our experts
Please reach out to your trusted Nexia advisor if you need advice or would like to be put in touch with a Nexia New Zealand tax specialist.
Written by Domenique Vasile from Melbourne and Jono Boyce from Christchurch
Originally published 1 October 2025 | nexia.co.nz
