Trust Tax rate - Increase to 39%

From 1 April 2024 the tax rate for Trusts and Estates increased from 33% to 39%.

The 33% tax rate will still apply in the following situations:
• Trusts that earn $10,000 or less in a tax year
• Deceased estates in the year of death and the first three full income years following death
• Disabled beneficiary Trusts
• Energy Consumer Trusts
In all other situations, trusts will be subject to the new rate of 39%.

While this change will have minimal impact on trusts that distribute their annual income to beneficiaries, trusts that retain income will face increased tax liabilities at the end of the 2025 income year.
For example, if a trust were to receive a gross dividend of $500,000, tax credits of 33% would be deducted at source, consisting of imputation credits and resident withholding tax.
With a 39% tax rate, the trust would then have to pay an additional 6% in tax. In this scenario, the result would be an additional $30,000 of tax to pay. This would impact terminal tax and provisional tax calculations. If this resulted in annual tax payable of over $60,000, the trust would be subject to IRD use of money interest (UOMI) at 10.91% from 7 May 2025 until the tax is paid.
Trusts that typically retain income could consider distributing it to beneficiaries. The income is then taxed at the beneficiaries personal tax rates. When doing this, this could impact the beneficiaries provisional tax position. Additionally the amount declared as beneficiary income is a debt owed to the beneficiary. The beneficiary could then request payment of this amount from the trust.

Income distributions to beneficiaries under the age of 16 will remain taxed at 39%.