"Non-Taxable" Bonus Units Issued to NZ Investors by Australian Based Unit Trusts - Now Taxable

Background
A binding ruling issued by the NZ Inland Revenue Department early in 2001 enabled certain Australian based unit trusts to make some or all of their returns in the form of non-taxable bonus units.

The arrangement for issue of tax free bonus units and the other requirements which made these fund structures tax effective were based on various sections of the existing Income Tax Act 1994 and the particular characteristics of Australian unit trusts.

Note that this applied only to a few, purpose designed, Australian based unit trusts. For other Australian unit trusts, issue of units in lieu of cash distributions is still taxable as they are not 'non-taxable bonus units'.

This useful arrangement was subsequently made void on 21st December 2004 by Government amendment of the Income Tax Act . The change means that bonus units from foreign unit trusts are now treated as taxable income for NZ residents.