New Zealand has an unusually high number of trusts — roughly 400,000 for a population of five million. For most of their history the tax treatment was straightforward and the trustee rate sat below the top personal rate. That changed, and it changed the calculation for a meaningful minority of them.
The current rates
For income years starting on or after 1 April 2024, the trustee tax rate is 39%, aligned with the top personal marginal rate.
A de minimis concession applies: trusts with trustee income of no more than $10,000 in a year continue to be taxed at 33%. The concession was designed so that small family trusts — the large majority — were not affected. On Inland Revenue’s own estimates only around 49,000 of the 400,000 trusts were expected to be caught by the higher rate.
Note that the de minimis is a cliff, not a threshold. A trust with trustee income above $10,000 is taxed at 39% on the whole amount, not just the excess.
Trustee income versus beneficiary income
This distinction now carries real money, and it is where planning happens.
Trustee income is income retained in the trust. It is taxed at the trustee rate.
Beneficiary income is income paid to, or vested in, a beneficiary within the statutory window — broadly within six months of the trust’s balance date. It is taxed at the beneficiary’s own marginal rate, which ranges from 10.5% to 39%.
Where a trust has adult beneficiaries on lower marginal rates, distributing income to them rather than retaining it can produce a materially lower tax outcome. This is legitimate and it is how trusts have always worked; the rate change simply widened the gap and made it worth doing deliberately rather than by default.
The limits on that
Two cautions apply, and both are frequently underestimated.
First, distributions to minor beneficiaries are generally taxed at 33% under the minor beneficiary rule, which removes the advantage of allocating income to children.
Second, and more importantly, beneficiary income must genuinely be beneficiary income. An allocation recorded in the accounts but never actually paid or made available creates a current account owing to the beneficiary, and that has its own consequences. Allocations that exist only on paper, or that are immediately lent back, attract scrutiny. Inland Revenue has been explicit that arrangements structured principally to obtain a tax advantage may be challenged.
Trust disclosure obligations
Separate from the rate, trusts have had substantially increased reporting obligations in recent years. Trusts deriving assessable income must generally provide detailed information with their returns, including financial statements, details of settlements and distributions, and information about settlors, beneficiaries and persons with power to appoint or remove trustees.
This is a real compliance cost, and it caught many trustees of dormant or low-activity trusts by surprise. Some exclusions apply for non-active trusts, but claiming non-active status requires a declaration and the conditions must actually be met.
Whether the trust still earns its keep
The higher rate, combined with the disclosure obligations, has prompted a reasonable number of families to ask whether a trust is still worth having. That is the right question, and the answer is often yes — but for reasons other than tax.
Trusts continue to serve asset protection, succession, relationship property and blended family purposes that have nothing to do with rates. What has changed is that a trust held purely for a tax advantage that no longer exists is now carrying cost for no benefit.
If you have a trust you have not reviewed in five years, the review is worth doing. Winding up a trust has its own tax and legal consequences and should not be done casually, but neither should a structure be maintained out of inertia.
Where to look
Inland Revenue publishes guidance on trustee income, the de minimis, the minor beneficiary rule and trust disclosure obligations free at ird.govt.nz, and its tax policy site publishes the underlying special reports. Trust taxation interacts with trust law under the Trusts Act, so a review is usually a conversation with both an accountant and a lawyer.
General information only, not tax or legal advice.
