You may remember in last year’s budget announcements a change in the tax rate for trusts from 33% to 39%, was signalled for 1 April 2024.
The tax hike was initially proposed by the Labour Party before the 2023 election and National remained surprisingly silent on the matter during last year’s election campaign. When Parliament was dissolved for the election, Labour’s tax Bill, which included the increase in the trust rate, lapsed.
However, when Parliament reconvened under the new National coalition government in December 2023, a motion to reinstate the business from the last Parliament led to the reintroduction of the bill. This decision, part of the Taxation (Annual Rates for 2023 – 24 Multinational Tax and Remedial Matters) Bill means the trust tax rate will increase from 33% to 39% at 1 April 2024 and will catch many by surprise.
Preparing for the increase
For clients with trusts, this change may require some strategic planning once the Bill is passed, expected to be close to 31 March. Companies holding retained earnings where shareholdings are held in trusts, may want to consider if a dividend prior to 31 March is appropriate so that those dividends are taxed at the old trust rate of 33% rather than the new rate of 39%.
More about navigating the new tax rate
De minimis threshold
Added March 2024: Note that this will be a ‘de minimis’ threshold (an all-or-nothing test) of $10,000, meaning that trusts with taxable income of $10,000 or less will retain the 33% tax rate, but trusts earning even $10,001 will be subject to the higher 39% rate on all income.
Get in touch
Stay informed and stay ahead of these changes to ensure you are well prepared for the upcoming increases in the trust tax rate and get in touch with us if you have any questions or concerns.
