Trust tax rate increases to 39%

Dear Clients,

We wish to inform you of an important change to the tax landscape for trusts in New Zealand.

From the 1st of April 2024, the trustee tax rate will increase to 39%. This change aligns the trustee tax rate with the top personal tax rate.

This adjustment is significant as it is estimated to raise approximately $350 million per year, contributing to a total of $1.1 billion over the forecast period.

Who Will Be Affected?

In the 2020–21 income year, there were 177,000 trusts that reported assessable income. Of these, only 9,000 (five percent) accounted for 78 percent of trustee income. It is these trusts, which are the higher earners, that will bear the brunt of the additional tax. Conversely, the lower 75 percent of trusts in terms of trustee income, which equates to 133,000 trusts, accounted for only 2.5 percent of trustee income and will be less affected. Notably, the lower 24 percent of trusts (43,000) that had only beneficiary income will not be impacted by the change in the trustee tax rate.

Why the Change?

The trustee tax rate has remained at 33% since 1989, which was originally set to match the top personal tax rate at that time. However, with the introduction of a new top personal tax rate of 39% for income over $180,000 in 2020, the trustee tax rate was not adjusted accordingly. The alignment of these rates is intended to prevent individuals from using trusts to circumvent the top personal tax rate, thereby enhancing the fairness and progressivity of the tax system.

Recommendation

We encourage you to review the trust structures and tax planning strategies you currently have in place in light of these proposed changes. It is important to consider the potential impact on your trust’s tax liability and explore any opportunities for tax-efficient distributions.

As your trusted partners we are here to provide you with the expert advice you need to navigate these changes.

Sincerely,

Your team at Achieve Chartered Accountants