The New Zealand Government has proposed an increment of the trustee tax rate from 33% to 39% as announced in Budget 2023. This proposed change will be effective from 1st April 2024. The objective behind this amendment is to normalize the trustee tax rate with the maximum tax rate applicable to individuals. The proposed change aims to prevent taxpayers from making a tax saving of 6% by gathering income in a trust and not dispersing the income to individual beneficiaries who fall under a 39% tax rate.

The increase in proposed tax rates has raised questions about the continued efficacy of trusts as asset planning structures. However, despite the potential increase in trustee tax rate, there are still various reasons to use trusts for asset planning:

Income splitting: Trusts can still be used for income splitting purposes, allowing for distribution of certain assets to beneficiaries on different tax rates.

Creditor protection: Family trusts can protect assets from the personal creditors of beneficiaries.

Setting aside income/assets: Trusts can be helpful for setting aside income or assets for specific purposes such as a child’s education or maintaining a family home to pass down through generations.

Protecting property against estate claims: Trusts can shield against estate claims after death, as court power may not cover trust terms rewriting.

Despite the potential increase in trustee tax rates, trusts can still be effective for asset planning purposes.

Get in touch with the team at BCA to discuss further.