Understanding the 2024 Tax Changes for Family Trusts in New Zealand: What Happened and Why?
Family trusts have long been a popular tool in New Zealand for asset protection, estate planning, and managing family wealth. However, a significant shift in taxation rules has prompted many trustees and beneficiaries to reassess their strategies. In this blog post, we’ll dive into the key tax change affecting family trusts, explore the reasons behind it, and discuss what it means for everyday Kiwis. Whether you’re a trustee yourself or simply curious about how tax policy evolves, this overview aims to clarify the landscape as of late 2025.
The Key Change: Trustee Tax Rate Hike to 39%
The most notable update came into effect on April 1, 2024, when the trustee income tax rate was increased from 33% to 39%. This adjustment applies to most trusts, including family trusts, that earn income above a certain threshold. Specifically, if a trust’s income exceeds $10,000 in a tax year, the 39% rate kicks in for trustee-retained income.
Prior to this, trusts enjoyed a flat 33% tax rate on income not distributed to beneficiaries, which was lower than the top personal marginal tax rate of 39% (introduced in 2021 for incomes over $180,000). Now, the rates are aligned, meaning trustees can no longer use the trust structure as a way to pay less tax on high earnings. However, there are some exceptions:
-
-
- De minimis rule: Trusts with $10,000 or less in trustee income are exempt from the 39% rate and can stick to 33%.
- Certain trust types: Estates, energy consumer trusts, and some others may qualify for lower rates or temporary exemptions (e.g., a 12-month grace period for some).
- Beneficiary distributions: Income allocated to beneficiaries is still taxed at their personal rates, which could be lower than 39% depending on their income bracket.
-
This change was part of the broader Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act, which received Royal Assent in March 2024. It’s worth noting that while the rate increase is the headline, it also came with enhanced disclosure requirements for trusts to Inland Revenue (IRD), ensuring better transparency.
Why Was This Change Implemented?
The primary driver behind this reform was to address perceived inequities in the tax system and curb tax avoidance. New Zealand’s previous setup allowed high-income individuals to funnel earnings through trusts, paying only 33% tax instead of the 39% personal rate. This loophole was seen as unfair, particularly as it benefited wealthier families while ordinary wage earners paid higher effective rates on their salaries.
The Labour government, under then-Finance Minister Grant Robertson, announced the change in the 2023 Budget as part of efforts to make the tax system more progressive and generate additional revenue for public services. Estimates suggested that the misalignment was costing the government around $200 million annually in lost revenue. By aligning the rates, the policy aimed to:
-
-
- Promote fairness: Ensure that income is taxed consistently, regardless of whether it’s held in a trust or earned personally.
- Reduce incentives for tax planning: Discourage the use of trusts solely for tax minimization, shifting focus back to their original purposes like asset protection.
- Boost government coffers: The extra revenue was earmarked for funding priorities such as healthcare, education, and infrastructure, especially in a post-COVID recovery context.
-
Critics, including some in the accounting and legal sectors, argued that the change could burden middle-class families who use trusts for legitimate reasons, like protecting homes from business risks or passing wealth to children. However, the incoming National-led government in late 2023 chose to proceed with the reform, viewing it as a necessary step toward fiscal responsibility.
Implications for Families and Trustees
For many family trusts, this isn’t a doomsday scenario—it’s more of a nudge to review distributions. If trustees allocate income to lower-taxed beneficiaries (e.g., those earning under $48,000, taxed at 17.5%-30%), they can still minimize the overall tax hit. That said, trusts holding significant rental properties, investments, or business income may face higher bills if income isn’t distributed.
Some families are responding by winding up trusts or converting them to other structures, like companies (which have a 28% tax rate), though this comes with its own costs and complexities. IRD has provided guidance to help navigate these waters, emphasizing compliance to avoid penalties.
If you’re a trustee, now’s the time to consult a tax advisor. Tools like IRD’s online calculators can help estimate impacts, but professional advice is key for tailored strategies.
Wrapping Up: A Step Toward Equity?
The 39% trustee tax rate marks a pivotal moment in New Zealand’s approach to trusts, closing a gap that had persisted for years. While it stems from a desire for a fairer system, it also highlights the ongoing tension between revenue needs and family financial planning. As we move further into 2025, keep an eye on any further tweaks—tax policy is rarely static.
If you have questions about how this affects your situation, feel free to share in the comments. Stay informed, and happy planning!