The Trust tax rate is changing.....

From 1 April 2024 the Trust tax rate is increasing from 33% to 39%. Here’s what you need to know.

What is changing and when will this happen?

The trustee tax in family trusts is increasing from 33% up to 39%. A bill is currently before parliament and the change will take effect from 1 April 2024 (or from the equivalent balance date).

Am I affected?

The 39% tax rate applies to amounts retained as trustee income and not allocated to individual beneficiaries. Where income is allocated to beneficiaries, their individual tax rates apply.

Most trusts have the ability to allocate income to beneficiaries. Where beneficiaries’ individual income exceeds $180,000, income is taxed at 39%. The Bill also applies to estates. However, estates are exempt from the 39% rate for 12 months from the date of death. During the 12-month period, the estate will be taxed at the personal tax rate of the deceased person.

Another special rule in the Bill applies to Trusts settled for the care of a disabled person. These will be taxed at the personal tax rate of the disabled beneficiary.

Is it still a good idea to have a family trust?

There are benefits to having a family trust in terms of asset protection, succession planning and tax benefits.

• Protecting assets – having a trust in most cases limits your personal liability. For example, if you provide a personal guarantee, or if you are convicted of an offence and fined under the Companies Act 1993, the Health and Safety at Work Act 2015 or the Resource Management Act 1991. A trust can also be a useful asset structure if you need more flexibility to deal with your assets upon your death and reduce the chance that a claim will be made against your estate.
• Succession planning – assets can be held in a Trust for various family members for multiple generations. This is especially the case where the asset of the Trust has special family significance (e.g. a waterfront bach) or where there is a family members with a disability that requires assistance from trustees to manage their finances (e.g. a trust that provides for an intellectually disabled child after their parents have both passed away).
• Tax benefits – subject to accounting advice, you can allocate income to various family members. Beneficiaries under 16 can only receive $1,000 but other family members can be allocated income at lower tax rates. Where land and buildings are held by a Trust, it is easier to distribute capital gains than it is in a company situation and those capital gains can be distributed to one or more of the beneficiaries as required.

What does this all mean for you?

It is important that you understand the implications of the Bill for your family trust. We are here to help. Get in touch with the team today.