Tax law overran tax planning with High Court approval needed to change terms of a family trust to avoid a $252,000 tax liability.
Warwick Peers set up his Onslow Family Trust in 1992 with the Trust later becoming one of two partners in a business partnership established in 2006.
The High Court was told the Trust’s tax adviser later found an expensive fishhook; the 2006 partnership agreement specified this partnership automatically came to an end on the same date either of the two trusts making up the partnership themselves came to an end.
Vesting date for the Onslow Trust is 22 November 2024. That meant the Trust (and the partnership) would wind up on that date, with an expensive $252,600 tax bill immediately kicking in.
This potential tax bill arises from tax rules requiring a write back of depreciation allowed as a tax expense on assets owned by the partnership. Tax rules force a clawback when defined assets are sold within a prescribed number of years from date of purchase.
Extending Onslow Trust’s vesting date was one solution. This created its own problems. Included as potential beneficiaries are unborn children of the Peers family. Adult beneficiaries could consent to Trust deed amendments, extending the vesting date; beneficiaries not yet born could not.
Using powers in the Trusts Act, Justice Osborne consented to an extension on behalf of unborn beneficiaries. As a traditional New Zealand family trust, the Onslow Trust was intended to see trust assets preserved and grown for benefit of future generations, he said.
Vesting date for Onslow Trust was extended to 2117.
re Onslow Trust – High Court (9.08.23)
23.133