One of the major changes that came into force was the change to the Trustee tax rate from 33% to 39%. This was to align the trustee tax rate with the top marginal tax rate of 39% which came into effect from 1 April 2021.
Although when first introduced there were concerns around the potential over taxation of trust income where beneficiaries were not subject to the 39% top marginal tax rate, the many submissions received meant that there were several tweaks made to the original proposal.
Here are the key points to note at a glance:
- Trusts with net trustee income of no more than $10,000 will continue to be taxed at a flat tax rate of 33%
- Estates in the year of death and the three income years following will be taxed at flat tax rate of 33%. After this time a 39% rate will apply
- Disabled beneficiary trusts (which is defined), energy consumer trusts and legacy superannuation funds will all have a flat tax rate of 33% going forward
Along with the above changes IRD also clarified what actions can be taken by trustees going forward which won’t be considered to be tax avoidance. IRD have also clarified when they may question certain transactions.
The changes apply from the 1 April 2024 and applies to a Trust’s 2024-2025 income year.
While the changes above received a lot of media time and coverage, what you may not be aware of are the changes made previously to the Trust Act 2019 (which came into force in January 2021) and the many disclosures now required to be provided to IRD as part of making trusts and its activities more transparent.
While there are still advantages of having a trust such as providing protection for your assets and the ability to distribute income to those on a lower marginal tax bracket, it might now be worth considering if the additional tax payable and the costs associated with the additional compliance outweighs the benefit of having a trust.
If you have a Trust and are unsure of what to do going forward or have any questions, then please feel free to reach out to us.
Trust Review Service – $1,000+GST
In addition to responding to any questions you may have, we offer a specialist Trust Review service that is tailored to your Trust and circumstances. This tailored Trust Review will give you clarity as to whether you still need your Trust and how you can be sure it complies with the Trusts Act 2019, and help you understand your obligations and tax liabilities going forward.
If you’re not sure if you need a full Trust Review, we can send you a “How Robust is Your Trust Checklist” to help you identify potential areas of concern and determine the actions you must take to ensure your Trust is compliant.