Family trusts are one of the most widely used legal structures in New Zealand — used for asset protection, estate planning, and income distribution. But they come with specific tax rules that every trustee and beneficiary must understand, particularly after the Trusts Act 2019 came into force and IRD increased its scrutiny of trust income.
What Is a Trust and Why Do New Zealanders Use Them?
A trust is a legal arrangement where assets are held by one party (the trustee) for the benefit of others (the beneficiaries). Family trusts in New Zealand are typically set up to:
- Protect assets from future creditors, relationship property claims, or bankruptcy
- Pass assets to the next generation in a controlled way
- Distribute income across multiple family members to reduce the overall tax burden through income splitting
- Qualify for residential care subsidies by reducing assessable assets
Tens of thousands of New Zealand families hold property, investments, or business assets in a trust structure. However, the landscape has changed since 2022 when the trustee tax rate was increased from 33% to 39% — matching the top personal income tax rate — specifically to reduce the tax advantage of trusts for high-income earners.
How Trust Income Is Taxed
Trust income can be taxed in two ways in New Zealand:
As trustee income (at 39%): If income is retained within the trust and not distributed to beneficiaries, it is taxed at the flat trustee rate of 39%. This rate was increased from 33% in April 2024, making income retention significantly more expensive.
As beneficiary income (at marginal rates): If income is distributed to beneficiaries in the same income year it is earned, it is taxed at the beneficiary’s personal marginal tax rate. For beneficiaries with lower incomes, this can be significantly less than 39%.
Key Tax Rules for NZ Trusts
- Trust income must be allocated to beneficiaries before the end of the income year (31 March) to avoid being taxed at the 39% trustee rate
- Distributions to minor beneficiaries (under 16) from trusts connected to their parents are taxed at 39% to prevent income splitting through children
- Trusts must now disclose all beneficiary details, distributions, and trustee information to IRD annually
- The Trusts Act 2019 imposes greater duties on trustees, including mandatory record-keeping and disclosure obligations to beneficiaries
Trust Tax Guides
- Family Trust Tax NZ — How Income Is Taxed — trustee income vs beneficiary income, distribution rules
- Trustee Tax Rate NZ — The 39% Trustee Rate — when it applies and how to minimise it through distributions
- Trust vs Company vs Sole Trader — Tax Comparison — which structure suits your situation