Exploring the Implications of the Tax Trust Rate Change in Budget 2023


Budget 2023 had its fair share of surprises, but one expected change was the adjustment to the tax trust rate. Grant Robertson, as hinted previously, decided to raise the tax trust rate from 33% to 39%, aligning it with the top personal income tax rate. This alteration is set to take effect on 1 April 2024.


The primary goal of this change is to promote fairness within the tax system. Since the top personal tax rate increased to 39%, there has been a notable 50% surge in the volume of funds passing through trusts.


Which trusts will be impacted?


The government asserts that “only a small portion of trusts will bear the majority of the additional tax burden.” The top 5% of trusts will be most affected, while the lower 24% will remain unaffected. Certain trusts, such as deceased estates and disabled beneficiary trusts, will still adhere to the previous 33% tax rate and be exempt from this alteration.

To learn more about these changes, you can refer to the fact sheet provided by the Inland Revenue.


Do you need to take action?


Before this change comes into effect, individuals involved in trusts should evaluate their asset allocation from a tax perspective.


There may be opportunities to make adjustments that optimize your arrangements and minimize unnecessary tax payments. For example, if the beneficiaries of your trust pay taxes at a lower rate, the trust can distribute its annual income to them. By doing so, the income can be taxed at the beneficiary’s personal tax rate. If this option is not viable, the trust might consider allocating income to a beneficiary’s current account or establishing a sub-trust for that beneficiary.


Additionally, it may be worth considering the administrative costs associated with maintaining a trust and whether it remains advantageous under the new tax rate. The company tax rate, which remains at a flat 28%, could present alternative avenues for asset ownership.


Let us assist you in reviewing and restructuring your trust


Navigating the complexities of structuring your affairs in a tax-efficient manner can be challenging, but we are here to assist you. Whether you have questions about your trust, need guidance regarding the implications of the new tax rate, or seek strategies to minimize unnecessary tax burdens, we are ready to provide the expertise you require.

Feel free to reach out to us by dropping us a note or giving us a call. We eagerly await the opportunity to assist you.

 

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