Why do we prepare annual financial statements for Trusts and is it really necessary?
Here at Citywide Accountants Ltd we manage accounting and reporting requirements for different types of trusts as part of our accounting and tax services.
There are different reasons for establishing trusts, some for charitable purposes and some for trading purposes to separate personal assets from business risk.
A common question is whether it is necessary to prepare annual financial statements for a Trust. As an accountant working within this sector, the simple answer is yes.
Trading trusts (also called private trusts) have become progressively common practice. Initially typically established by farmers protecting their land and latterly more popular among business owners to establish separation between personal assets and business enterprise. Families have also opted for private trust for personal reasons, not least to initiate a process whereby income can be split between parties for tax purposes.
Currently New Zealand requirements dictate that private trusts currently have no statutory financial reporting obligations. Notwithstanding, there is a practical responsibility on the part of trustees to prepare annual financial statements. The purpose of these statements is to report the assets held and financial performance of the Trust, as well as to report on distributions to beneficiaries. The act of preparing the statements establishes and validates the existence of the trust and evidences that the assets are complete and separate from the private assets of the trustees. This is a very important part of the process.
When filing tax obligations, it is necessary that private trusts prepare annual financial statements.
It is a fundamental duty when accounting to beneficiaries of a Trust to provide up to date financial knowledge of the Trust’s affairs. Tax obligations can only be identified and satisfied once the financial position of the Trust has been established. It is obvious accounting and tax services are important when it comes to trusts.
Call us on 09 266 8379 if you would like more information