The Trust tax rate is changing.....
Gina Gambitsis • March 13, 2024
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.
As we head into Christmas, the team at GCOL Chartered Accountants wants to wish you all a relaxing break filled with sunshine, good company, and hopefully a moment or two where your inbox is blissfully silent
A Light-hearted guide to balancing Business and a Break
Navigating the ins and outs of business expenses and tax deductions can feel overwhelming for many New Zealand business owners. However, understanding what expenses you can claim can significantly reduce your taxable income, ensuring you don’t pay more tax than necessary. Fortunately, the New Zealand tax system is clear about which business expenses are deductible, and with the help of professionals like GCOL Chartered Accountants, you can make sure you’re maximizing your claims. What Are Business Expenses in New Zealand? In simple terms, business expenses are the costs incurred in the day-to-day running of your business. These expenses are essential to generating your business income and are therefore deductible, meaning you can subtract them from your revenue to determine your taxable income. The New Zealand Inland Revenue (IR) Department has guidelines to help business owners understand what expenses are claimable. Here's a breakdown of the most common claimable business expenses: 1. Operating Expenses These are the costs involved in keeping your business running. Examples include: Rent and Utilities : The cost of renting office space or premises, as well as utilities like electricity and water, are claimable. Insurance : Premiums for business insurance (e.g., property, liability, and vehicle insurance) are deductible. Advertising and Marketing : Costs associated with promoting your business, such as online ads, print advertising, and marketing campaigns, can be claimed. Office Supplies : Items such as paper, pens, computers, and other office-related expenses are eligible for deduction. Bank Fees and Interest : Fees for business accounts and interest on business loans are deductible. 2. Vehicle and Travel Expenses If you use your vehicle for business purposes, you can claim a portion of the vehicle expenses, which may include: Fuel, Repairs, and Maintenance : If your vehicle is used for business, you can claim the costs proportionate to business use. Travel Expenses : Airfares, accommodation, and meals while traveling for business purposes are deductible. Remember, personal use of the vehicle or travel expenses cannot be claimed. You will need to apportion these costs based on business use. 3. Employee and Contractor Costs If you have employees or contractors, the following are claimable expenses: Salaries and Wages : Payments to employees, including bonuses, holiday pay, and KiwiSaver contributions, are deductible. Contractor Fees : If you hire independent contractors, their fees are also claimable. Training and Development : Costs associated with training and developing your team are deductible, so long as they are relevant to your business. 4. Depreciation Some business assets, such as equipment, vehicles, or buildings, lose value over time. Instead of claiming the full cost in one go, you can claim depreciation on these assets. The IRD provides depreciation rates for various asset types. 5. Professional Services If you hire professionals to assist with your business, their fees are claimable, including: Accountant and Legal Fees : Fees for financial advice, tax preparation, or legal assistance related to business activities can be deducted. Consulting Fees : If you engage business consultants for services such as market research or business planning, these expenses are also claimable. 6. Home Office Expenses Many small business owners or sole traders work from home. If this applies to you, you can claim a portion of your home-related expenses, such as: Mortgage Interest or Rent : If you work from home, you can claim a percentage of your mortgage interest or rent based on the portion of your home used for business. Electricity and Internet : You can also claim a portion of your electricity, phone, and internet costs based on the percentage of time you use them for business. How GCOL Chartered Accountants Can Help While the list of claimable business expenses might seem straightforward, many business owners find the nuances of the tax system difficult to navigate. That's where GCOL Chartered Accountants comes in. Our team of experts is here to help you maximize your tax deductions while staying compliant with the IRD’s guidelines. Here’s how we can assist you: Maximizing Deductions : We’ll ensure you claim every allowable business expense to minimize your tax burden. Tax Planning : Our team can help with strategic tax planning, offering advice on how to structure your expenses and income to maximize tax efficiency. Accurate Record-Keeping : We help you maintain accurate and organized financial records, making it easier to file your returns and defend your claims if needed. Depreciation and Asset Management : We provide advice on depreciating assets properly to ensure you're getting the maximum allowable claim over time. Compliance with IRD : Our team stays up to date with the latest tax regulations and ensures your claims are compliant with New Zealand tax laws, so you can avoid penalties or audits. Get In Touch with GCOL Chartered Accountants Today Managing business expenses and understanding tax deductions can be complicated, but with GCOL Chartered Accountants on your side, you can rest assured that your business is in good hands. Whether you're just starting out or you've been in business for years, we offer expert guidance tailored to your specific needs. Contact us today to learn more about how we can help you optimize your tax situation and ensure your business’s financial success. Let us take the guesswork out of managing your business expenses so you can focus on growing your business!  By staying informed and seeking professional advice, you can make the most of your claimable business expenses under the New Zealand tax system. Let GCOL Chartered Accountants help you navigate the complexities of tax deductions with ease.
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