Tax Update: Tax to be based on Trusts Income
The New Zealand government has proposed changes to tax legislation to ease the over-taxation of low-earning trusts. These changes, recommended by Parliament’s Finance and Expenditure Committee, amidst the scrutiny of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill.
Finance Minister Nicola Willis has expressed her support for these amendments, highlighting the government’s intent to ensure equitable tax treatment for high-income individuals, regardless of how their income is generated— directly or through a trust. However, an unintended consequence of the initial bill draft caused many lower-income trusts to endure most of the top tax rate of 39%.
The committee recommends introducing a $10,000 trustee income as a minimum threshold. Trusts generating less than $10,000 of trustee income annually will now be taxed at a lower rate of 33%, rather than the top rate of 39%. This adjustment is set to impact only about 49,000 out of the 400,000 trusts in New Zealand, a move that significantly reduces the tax burden on lower-income trusts.
Moreover, Revenue Minister Simon Watts said that most trusts do not face the trustee tax rate, as they either own the family home without generating income or distribute all their income to beneficiaries as it is earned. In 2022, approximately 76,000 trusts were subjected to the trustee tax rate. The proposed change means an additional 27,000 trusts earning less than $10,000 of trustee income yearly will be protected from the top trust tax rate adjustment.
The changes also aim to simplify and expand proposals relating to estates and trusts settled for disabled people, aiming to reduce compliance costs. It suggested that estate rates remain at 33% for the year of death and the subsequent three income years and that the trustee rate for disabled beneficiary trusts also stays at 33%.
Furthermore, energy consumer trusts and legacy superannuation funds have been set aside for exclusion from the 39% trustee tax rate, this emphasizes the government’s commitment to preventing unintended consequences arising from the bill.
This is a positive development for trustees and beneficiaries across the country, promising a more balanced approach to taxation that recognizes the diverse purposes and financial realities of trusts in New Zealand.
Source: https://www.beehive.govt.nz/release/trustee-tax-change-welcomed