WELLINGTON, New Zealand -
Dec. 5, 2023 -
PRLog -- Trusts play a significant role in the financial landscape of New Zealand, with one trust estimated for every 12-15 people—a testament to Kiwis' love for this protective structure, often safeguarding family homes. However, the recent announcement of an increase in the trustee tax rate from 33% to 39% starting April 1, 2024, has stirred concerns among everyday Kiwis, who might find this change impacting their financial plans.
Key Points: - Flat Rate Increase: From April 1, 2024, any income retained by a trust will face a flat tax rate of 39%, aligning with the top personal tax rate. This poses a significant jump compared to the average personal tax rate for Kiwis.
- Exceptions to the Rule:
- Beneficiary Distribution: If a trust distributes or allocates income to an adult beneficiary (16 years or older), the tax rate on that income aligns with the beneficiary's personal tax rate. Trustees should consult their trust accountant, especially for beneficiaries under 16, and consider the beneficiary's New Zealand residency.
- Disabled Beneficiary Exception: Trusts formed specifically to provide for a disabled person will have the trustee's tax rate matching the disabled beneficiary's personal tax rate. This exception applies if the disabled beneficiary is the sole beneficiary; otherwise, the 39% rate prevails on undistributed income.
- Deceased's Estate Grace Period: Following a person's death, there is a 12-month grace period where any income generated from the deceased's estate is taxed at the deceased's personal tax rate prior to death.
Closing Income Loopholes: The changes in trustee tax rates seem designed to prevent income funnelling loopholes. Encouraging the winding up of estates within 12 months can be challenging practically. Trusts seeking to manage tax obligations should regularly assess the possibility of distributing trust income, aligning with the beneficiaries' needs and the trust's purpose. This is reinforced by trustees' default duties under section 32 of the Trusts Act 2019.
Considerations for Trustees: - Exercise Trustee Powers: Trustees can proactively exercise their powers to distribute income, balancing beneficiaries' needs and trust purposes.
- Impartial Review: Having an independent trustee can impartially review and agree to decisions, adding legitimacy to the trust's actions.
- Planned Distributions: Careful planning is crucial for compliance with the trust's terms and purpose. Seek independent tax advice if uncertainties arise regarding the potential impact of planned distributions on the trust.
Navigating the complexities of these changes requires a thoughtful and informed approach. If you are uncertain about your trust's specific circumstances, seeking independent advice can provide clarity on the best course of action.
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