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What the New 39% Trustee Tax Rate Means for Your Trust's Finances.

A special report published by Inland Revenue outlines how the 39% tax rate will operate and is a useful reference for you. We have summarised the information below and attached the flowchart for a visual example of how it will operate.

As of April 1st, the trustee tax rate has increased from 33% to 39% for the 2024–25 and later income years. However, the 33% rate still applies if trustee income for the income year does not exceed $10,000 after deductible expenses.

This blog post will outline the key features, effective dates, and measures to mitigate over-taxation, providing you with a comprehensive understanding of these new changes.

You can read Inland Revenues full publication here:

Key Features

  • Increased Trustee Tax Rate: The trustee tax rate has been increased from 33% to 39%.

  • Exemption for Low Income: To help mitigate over-taxation, the 33% rate still applies if trustee income for the income year does not exceed $10,000 after deductible expenses.

  • Clarification for Beneficiary Income: Amendments clarify that beneficiary income subject to the minor beneficiary rule is subject to the 39% trustee tax rate.

Effective Date

These amendments apply for the 2024–25 and later income years, starting from 1 April 2024 for most trusts.

Measures to Mitigate Over-Taxation

  • Retaining the 33% Rate: The 33% rate is retained where trustee income for the income year does not exceed $10,000 after deductible expenses.

  • Special Rules for Specific Trusts: Targeted rules apply for deceased estates and trusts settled for disabled people.

Trustee Income Flowchart

For the 2024–25 and later income years, trustee income is subject to tax at the 39% trustee tax rate to address the under-taxation of trust income, unless special rules to mitigate over-taxation apply. Below is a simplified explanation of how the different rules for trustee income interact taken from the full IRD report.:

Current Law:

  • The annual income of a trust is taxed either to the trustees or to the beneficiaries of the trust.

  • Trustees of a trust are treated as a single taxable entity, and their trustee income is calculated separately from their personal income.

Types of Trust Income

Beneficiary Income

Definition: Beneficiary income includes all income earned by a trust in an income year that is vested absolutely in a beneficiary during the income year, or paid or allocated to a beneficiary before the later of:

  • 6 months following the end of the income year, or

  • The earlier of the date the trust files its tax return or the date the trust is required to file its tax return.

Income does not need to be paid to a beneficiary to be classified as beneficiary income; it can be allocated to a beneficiary.

Trustee Income

Definition: Trustee income includes all income derived by the trustees of a trust in an income year that is not beneficiary income. Once income has been taxed as trustee income, subsequent distributions of that income to the beneficiaries are tax-free. This means that trustee income is subject to a final tax imposed in the year the income is derived by the trust.

Trustee’s Net Income

Beneficiary income is first derived by a trustee and then by a beneficiary once it has been vested in or paid to the beneficiary. It is only taxed once in the case of a complying trust (i.e., to the beneficiary). Beneficiary income is included in the beneficiary’s income for calculating their net income. Beneficiary income is not included in the trustee’s income for calculating the trustee’s net income. However, when determining the deductions a trustee is allowed in an income year, beneficiary income is treated as trustee income. Beneficiaries are denied a deduction for any expenditure or loss incurred by the trustee in deriving the beneficiary income. This means that the trustee’s net income is determined based on only trustee income (excluding any beneficiary income) less any deductions incurred in deriving both trustee and beneficiary income.

Trustee’s net income = Trustee income - deductions (from deriving both trustee and beneficiary income)

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