Business Accountants: Trust Tax Rate Increase to 39%: What You Need to Know

 

As the government plans to increase the trustee tax rate to 39%, understanding the proposed changes is essential for trustees and beneficiaries alike. 


Here’s a breakdown of what you need to know:


13 March 2024 Update: 


The Taxation Bill is set to increase the tax rate on trustee income from 33% to 39% starting from 1 April 2024. A two-tier system has been proposed, retaining the 33% rate for trusts with less than $10,000 income, disabled beneficiary trusts, deceased estates, and energy consumer trusts. 


Complexity around marginal tax rates for beneficiaries and administrative concerns led to the abandonment of certain proposals. No specific anti-avoidance measures are in place for trusts with income below $10,000.


08 February 2024 Update: 


The proposed increase in the trustee tax rate has sparked interest in restructuring to minimize exposure to the new rate. Scenarios such as altering dividend policies or distributing income to beneficiaries may raise concerns about tax avoidance. 


Transferring income-earning assets to a company structure to benefit from the lower corporate tax rate is permissible but may face scrutiny in certain cases. Winding up a trust or investing in a portfolio investment entity are legitimate options. Inland Revenue highlights potential areas for scrutiny, including income allocation, dividend replacement with loans, and artificial timing alterations.


While the impending tax rate increase prompts strategic considerations, it’s crucial to ensure compliance and transparency in any restructuring efforts. Understanding permissible actions versus potential avoidance is key to navigating the changing tax landscape effectively. 


Stay informed and seek professional advice to make informed decisions regarding trust taxation.


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