Trusts caught in FATCA net

The Foreign Account Tax Compliance Act (FATCA) has come into force in New Zealand over the past 18 months.

The Act requires financial institutions around the world to provide information about customers who are United States “persons” to the IRS.

But a guidance note issued by the IRD makes it clear that family trusts in this country become financial institutions, with associated FATCA requirements, when they use professional investment management services, even if no one involved in the trust is a US citizen.

There is a small amount of relief available to trusts under the US Treasury rules but only if the income from professionally-managed investments is less than 50 per cent of the trust’s income.