EW 50 Income when debt forgiven to trustee
When this section applies

(1)

This section applies when—

(a)

a trust is a debtor; and

(b)

the trust was established mainly to benefit 1 or both of the following:

(i)

a natural person for whom the creditor has natural love and affection; or

(ii)

an organisation or a trust whose income is exempt under section CW 41 (Charities: non-business income) or CW 42 (Charities: business income); and

(c)

the creditor is a natural person; and

(d)

the creditor forgives the debtor’s debt; and

(e)

a trustee of the trust makes a distribution, including a distribution of beneficiary income, to a beneficiary; and

(f)

the beneficiary is—

(i)

not a natural person for whom the creditor has natural love and affection; and

(ii)

not an organisation or a trust whose income is exempt under section CW 41 or CW 42; and

(g)

the distribution is made on or after 20 May 1999.

Exclusion

(2)

This section does not apply when—

(a)

a trust (trust A) is a debtor; and

(b)

trust A was established mainly to benefit 1 or both of the following:

(i)

a natural person for whom the creditor has natural love and affection; or

(ii)

an organisation or a trust whose income is exempt under section CW 41 or CW 42; and

(c)

the creditor is a natural person; and

(d)

the creditor forgives the debtor’s debt; and

(e)

a trustee of the trust makes a distribution to another trust (trust B); and

(f)

at the time the distribution is made, trust B is also established mainly to benefit 1 or both of the following:

(i)

a natural person for whom the creditor has natural love and affection; or

(ii)

an organisation or a trust whose income is exempt under section CW 41 or CW 42.

Two points about subsections (1) and (2)

(3)

For the purposes of subsections (1) and (2),—

(a)

the debtor’s debt includes an amount accrued and unpaid at the time of the forgiveness; and

(b)

the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.

Distribution is income of trustee

(4)

The distribution is income of the trustee, under section CC 3(2) (Financial arrangements), to the extent to which it is less than or equal to the total amount of the debts of the trust forgiven to it by the creditor.

Distribution subtracted from total amount forgiven

(5)

The distribution is subtracted from the total amount of the debts of the trust forgiven to it by the creditor as the total amount stands at the time of the distribution.

Timing

(6)

The income is derived by the trustee in the income year in which the distribution is made.

Application of Tax Administration Act 1994

(7)

Section 22B of the Tax Administration Act 1994 applies to a trustee to whom this section applies.

Defined in this Act: amount, beneficiary income, distribution, income, income year, pay, trustee

Compare: 2004 No 35 s EW 51