Community trust – Non-reporting financial institution determination

Reference

This determination is made under section 91AAW of the Tax Administration Act 1994.

Interpretation

In this determination, unless the context otherwise requires:

"CRS Applied Standard" means the CRS Standard as modified by section 185O for the determination of requirements under the Tax Administration Act 1994.

“CRS Publication” means the Standard for Automatic Exchange of Financial Account Information in Tax Matters, published by the Organisation for Economic Co-operation and Development.

“CRS reporting period” means the period from 1 April 2018 to 31 March 2019 and any subsequent 12-month period from 1 April to 31 March.

"CRS Standard" means the Common Standard on Reporting and Due Diligence for Financial Account Information, as amended from time to time, which is a standard –

1. developed by the Organisation for Economic Co-operation and Development and the Group of Twenty countries; and
2. agreed by the Council for the Organisation for Economic Co-operation and Development on 15 July 2014; and
3. contained in Part IIB of the CRS Publication.

“Charitable Trusts Act” means the Charitable Trusts Act 1957.

“Community Trust” means a Community Trust that is defined in section 4 of the Community Trusts Act (being a Community Trust established under Part 2 of the Trustee Banks Restructuring Act 1998 to acquire the shares in the capital of a trustee bank’s successor company and for the purposes specified in that Act).

“Community Trusts Act” means the Community Trusts Act 1999.

Discussion (which does not form part of the determination)

There are currently 12 Community Trusts in New Zealand that were originally established under the Trustee Banks Restructuring Act 1988 to be vested with the ownership of the then government-owned shares in each regional trustee bank.

Most of these Community Trusts have sold their trustee bank shares and now manage significant and diversified portfolios of investments for the public benefit of the community within each of their statutory area or region in New Zealand. They are regulated by the Community Trusts Act and are subject to the terms of their trust deeds (which are also regulated by that Act).

The statutory purpose of these Community Trusts is to hold property (and property vested in them) on trust to be applied for charitable, cultural, philanthropic, recreational, and other purposes that are beneficial to their communities, principally in their area or region (see section 12 of the Community Trusts Act).

Each of these Community Trusts provides annual grant funding to a range of regional community-based organisations and entities.

The Community Trusts that are the subject of this determination are:

• Incorporated charitable trusts, incorporated under, and subject to, the Charitable Trusts Act; and
• Managed investment entity financial institutions under Section VIII(A)(6)(b) of the CRS Standard, as their gross income is primarily attributable to investing, reinvesting, or trading in financial assets, and their assets are managed (in whole or part) by other entities that are financial institutions.

Each of this type of Community Trust, that is a managed investment entity financial institution:

• While not wholly government owned and controlled, the government is effectively its settlor and protector, and responsible (along with its trustees, and the Crown) for its governance and operational oversight;
• Is regulated under the Community Trusts Act, Charitable Trusts Act, and other New Zealand law, including government and Crown governance and oversight;
• Has objects that are solely for public benefit purposes within their specific geographical area or region (per the Community Trusts Act and its trust deed);
• Only provides grant benefits to community-based organisations and entities (and not directly to private individuals), in terms of the Community Trusts Act and its trust deed;
• Does not seek external funding for investment, but derives its income from the investment of its funds (which originally arose from the Crown endowment);
• Derives investment income that is not derived from the carrying on of any commercial business that provides financial services to private persons; and
• As an incorporated charitable trust, if it was ever liquidated or dissolved, the treatment of its surplus assets would be determined by the High Court of New Zealand. Such a decision would be consistent with the object of its trust deed and the scheme of the Community Trusts Act.

Scope of determination

For the avoidance of doubt, this determination only applies to a type of Community Trust that is a Financial Institution under the CRS Standard and that satisfies all of the following conditions:

• It continues to not operate a commercial business that provides financial services to private persons;
• It is, and continues to be, a Community Trust that is subject to the Community Trusts Act (originally established under Part 2 of the Trustee Banks Restructuring Act 1998);
• It is, and continues to be, an incorporated charitable trust under the Charitable Trusts Act; and
• Due to its status as also being an incorporated charitable trust, if ever liquidated or dissolved, the High Court of New Zealand will decide how any of its surplus assets are vested, and such a decision would be consistent with the objects of its trust deed and the scheme of the Community Trusts Act.

A type of Community Trust that fully meets the scope and requirements of this determination is considered to fully satisfy the requirements for having substantially similar characteristics to a “governmental entity” that is a “controlled entity”, as described in subparagraphs B(2) and B(2)(b) of Section VIII of the CRS Standard.

Determining that a type of Community Trust outlined above is a non-reporting financial institution, and specifying this under New Zealand law, does not frustrate the purposes of the CRS Standard.

Determination

A Community Trust that meets all the above conditions and requirements, as outlined in the scope of this determination, is a non-reporting financial institution for the purposes of the CRS Applied Standard and the requirements under Part 11B of the Tax Administration Act 1994.

Application date

This determination applies for the CRS reporting period 1 April 2018 to 31 March 2019, and subsequent CRS reporting periods under the CRS Applied Standard.

Dated at Wellington this 27th day of March 2019

Tony Morris

Customer Segment Lead, Significant Enterprises Customer Segment