Budget 2023 brought several surprises, but one change that was anticipated was the adjustment to the tax trust rate. Grant Robertson, as previously hinted, raised the tax trust rate from 33% to 39%, aligning it with the top personal income tax rate. The effective date for this change is set for 1st April 2024. The primary objective behind this modification is to create a fairer tax system, addressing the 50% increase in trust-related money since the top personal tax rate was raised to 39%.
According to the Government, the impact of this change will mainly be felt by a small proportion of trusts. Approximately 5% of trusts will bear the majority of the additional tax burden, while the remaining 24% will remain unaffected. Some trusts, such as deceased estates and disabled beneficiary trusts, will continue to be exempt and retain the 33% tax rate.
For more detailed information, refer to the Inland Revenue’s fact sheet available here.
Do you need to take action?
Prior to the implementation of these changes, it is advisable for all trust participants to reassess their asset allocation from a tax perspective. There may be opportunities to optimize arrangements and avoid unnecessary tax payments. For instance, if the beneficiaries of your trust are subject to a lower tax rate, the trust can distribute its annual income to them, enabling taxation at the beneficiary’s personal tax rate. Alternatively, the trust may credit income to a beneficiary’s current account or establish a sub-trust for their benefit.
Additionally, it may be prudent to evaluate the administrative costs associated with maintaining a trust under the new tax rate. Considering the flat company tax rate of 28%, alternative strategies for asset ownership may present additional advantages.
Navigating the complexities of structuring your affairs in a tax-efficient manner can be challenging, but we’re here to help. Our team is available to address your trust-related queries, provide insights on the implications of the revised tax rate, and suggest effective strategies to minimize your tax liability.
Reach out to us via email or phone – we look forward to hearing from you.
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