From 1 April 2024, the NZ trustee tax rate increased from 33% to 39% — matching the top personal income tax rate. This change significantly affects how trust income should be managed. If you are a trustee or beneficiary of a NZ trust, here is what you need to know.
The trustee tax rate is now 39% on income retained in a trust (up from 33% before 2024). Income distributed to beneficiaries is taxed at the beneficiary's personal rate — which may be 10.5%, 17.5%, or 30%. The tax case for retaining income in a trust has largely gone. Most trustees should now consider distributing more income to beneficiaries with lower personal rates to reduce overall tax. Consult your accountant before 31 March each year to make distribution decisions.
The Rate Change and Why It Happened
Prior to 1 April 2024, the trustee tax rate was 33%. When the government introduced the 39% top personal tax rate in 2021, trusts became a tax shelter — individuals on 39% could settle income-earning assets into a trust and have income taxed at only 33%.
To close this gap, the trustee rate was lifted to 39% from 2024. The result: retaining income in a trust now costs the same as the highest personal rate.
Trustee Rate vs Beneficiary Rate — The Key Difference
| Income treatment | Tax rate |
|---|---|
| Trustee income (retained in trust) | 39% |
| Beneficiary income — 10.5% rate person | 10.5% |
| Beneficiary income — 17.5% rate person | 17.5% |
| Beneficiary income — 30% rate person | 30% |
| Beneficiary income — 33% rate person | 33% |
| Beneficiary income — 39% rate person | 39% |
| Minor beneficiary income (under 16) | 39% (same as trustee rate) |
Who Pays Trustee Income Tax?
The trustee pays tax on income retained in the trust. This is paid from the trust’s assets. The payment comes from the trust, not personally from the trustee.
If there are multiple trustees, any one trustee can be held responsible for the payment (though the liability is shared among all trustees).
How to Reduce the Tax Rate Through Distributions
Since the trustee rate is now 39%, trusts with discretionary beneficiaries on lower personal rates should distribute income to those beneficiaries:
Example:
- Trust income: $80,000
- Option 1 (retain all): Tax = $80,000 × 39% = $31,200
- Option 2 (distribute $40,000 to spouse on 17.5% rate, retain $40,000):
- Trustee tax: $40,000 × 39% = $15,600
- Beneficiary tax: $40,000 × 17.5% = $7,000
- Total tax: $22,600 — saving $8,600
Timing: Distributions Must Be Resolved Before Year-End
The income year ends 31 March. To qualify as beneficiary income for that year, trustees must formally resolve the distribution by 31 March (or in some cases, shortly after with a clear resolution recorded).
Critical: Decisions not made until after 31 March cannot be retrospectively applied to the prior year. Income not distributed in the year defaults to trustee income at 39%.
Contact your accountant in February or early March to review the trust’s income position and make timely distribution decisions.
Exceptions to the 39% Rate
Some trusts are not subject to the 39% trustee rate:
| Trust type | Rate |
|---|---|
| Deceased estate (years 1–3 after death) | 33% |
| Testamentary trust (from a will) | 33% (for settlor’s lifetime + 5 years) |
| Eligible charitable trusts | 0% (exempt) |
| Superannuation schemes | Special rules |
Reporting: The IR6
Trustees file the IR6 annual tax return, which reports:
- All trust income
- Expenses claimed
- Beneficiary income allocated (with each beneficiary’s name and IRD number)
- Trustee income retained
- Tax payable
IRD uses this to cross-check that beneficiaries are reporting distributed income on their personal returns. Ensure beneficiaries include trust distributions on their IR3 or automatic assessment.
Frequently Asked Questions
Has the 39% rate made family trusts pointless?
Not entirely. Family trusts still provide asset protection (from creditors, relationship property claims), estate planning benefits, and income splitting to beneficiaries on lower rates. What has changed is the tax benefit of retaining income in the trust — that advantage is now gone.
What if our trust’s beneficiaries are all on 33% or 39%? Is there still a benefit?
Minimal tax benefit for income distribution. However, the trust may still serve asset protection and succession planning purposes. Review with your legal adviser whether the trust continues to meet your goals.
We have an old trust deed. Do we need to update it for the new rate?
The rate change is in the tax legislation — not in your trust deed. You don’t need to update the deed for this change, but it’s worth reviewing your deed periodically with a lawyer to ensure it still reflects your intentions.