Trust Tax Rate at 39%: What the New Rate Means for Trustees and Settlors
New Zealand's trustee tax rate increased from 33% to 39% from the 2024-25 income year. Here's why it changed, how it affects trust distributions, and what trustees should consider.
Published 22 March 2026 · Reviewed by NZ Tax Tools Editorial Desk
From the 2024–25 income year (1 April 2024 onwards), the trustee tax rate in New Zealand increased from 33% to 39%. This aligns the trustee rate with the top personal tax rate of 39% that applies to individual income over $180,000.
The change was introduced through the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Matters) Act 2024. It’s one of the most significant changes to trust taxation in New Zealand in years — and it affects a large number of family trusts.
Why the Rate Changed
When the 39% personal tax rate was introduced in 2021 for income over $180,000, the trustee rate stayed at 33%. This created a 6% gap — income parked in a trust was taxed at 33%, while the same income earned personally by a high earner would be taxed at 39%.
The government saw trusts being used to shelter income from the top rate. IRD data showed a significant increase in income retained in trusts after 2021. Closing the gap removes the incentive to accumulate income in a trust purely for a lower tax rate.
How Trust Income Is Taxed in NZ
To understand the impact, it helps to review the three ways trust income can be taxed:
Trustee Income (now 39%)
Income that is retained in the trust (not distributed to beneficiaries) is taxed at the trustee rate. This was 33% — it’s now 39%.
This is the income most directly affected by the change.
Beneficiary Income (taxed at the beneficiary’s personal rate)
Income that is distributed to beneficiaries within the income year (or within the extended time allowed by the trust deed) is taxed at each beneficiary’s marginal tax rate — not the trustee rate.
If a beneficiary earns under $180,000 in total, their marginal rate is below 39%, so distributing income to them remains more tax-efficient than retaining it in the trust.
Settlor Income (taxed at the settlor’s rate)
In certain situations — particularly where the settlor retains control or benefit from the trust — income may be taxed as the settlor’s income. This is less common but applies to some trust structures.
Practical Impact
For Trusts That Retain Income
The tax increase is straightforward: 6% more tax on every dollar retained. A trust retaining $100,000 of income now pays $39,000 in tax instead of $33,000 — an extra $6,000.
For trusts that have historically accumulated income (common with investment trusts or trading trusts building reserves), this is a material cost increase.
For Trusts That Distribute All Income
If your trust already distributes all income to beneficiaries each year, the trustee rate change has no direct effect. Beneficiary income is taxed at the beneficiary’s personal rates regardless of the trustee rate.
However, the change may affect your distribution strategy — see below.
For Trusts With Beneficiaries on Lower Tax Rates
Distributing income to beneficiaries on lower marginal rates has always been more tax-efficient than retaining it. The 39% trustee rate widens the advantage:
| Beneficiary’s total income | Marginal rate | Tax saving vs 39% trustee rate |
|---|---|---|
| Up to $15,600 | 10.5% | 28.5% |
| $15,601 – $53,500 | 17.5% | 21.5% |
| $53,501 – $78,100 | 30% | 9% |
| $78,101 – $180,000 | 33% | 6% |
| Over $180,000 | 39% | 0% |
The incentive to distribute is now stronger than before — but only if the distributions are genuine and comply with trust law.
What Trustees Should Consider
Review Your Distribution Policy
If your trust has been retaining income at 33%, the maths may now favour distributing to beneficiaries on lower rates. But distributions must be genuine — made in accordance with the trust deed and for legitimate purposes.
IRD has signalled increased scrutiny of trusts distributing income to low-income beneficiaries (such as adult children or non-working spouses) purely for tax purposes. The distributions must be real, and the beneficiaries must have access to the funds.
Consider Whether the Trust Is Still Necessary
Many New Zealand family trusts were established for asset protection, estate planning, or income splitting. If the primary benefit was the lower 33% tax rate, that’s gone. The compliance and administration costs of a trust (accounting, annual returns, trustee obligations under the Trusts Act 2019) may no longer be justified.
Some trustees are choosing to wind up trusts and hold assets personally — particularly where asset protection isn’t a concern and the trust adds complexity without tax savings.
Timing of Distributions
Trust income must be distributed (or allocated) within the income year to be taxed as beneficiary income rather than trustee income. Check your trust deed for any specific distribution timing requirements.
If your trust deed allows retrospective allocation of income to beneficiaries (common in many NZ trust deeds), ensure resolutions are made and documented before the end of the income year — 31 March.
Investment Portfolio Considerations
Trusts holding investments may want to reconsider asset allocation:
- PIE funds taxed at a maximum Prescribed Investor Rate (PIR) of 28% remain more tax-efficient than direct investments taxed at the 39% trustee rate
- Shifting from direct share or bond holdings to PIE-structured funds could save 11% on investment income
- KiwiSaver is personal (not available to trusts), but PIE managed funds are
Compliance Under the Trusts Act 2019
While not a tax matter, trustees should be aware that the Trusts Act 2019 imposes increased governance obligations — including a duty to keep core trust documents, maintain financial records, and provide information to beneficiaries on request. The cost of compliance is another factor when assessing whether to retain or wind up a trust.
Transitional Provisions
There are no special transitional provisions. The 39% rate applies to all trustee income derived from the 2024–25 income year onwards (income earned from 1 April 2024). Trusts that made provisional tax payments at 33% for the 2024–25 year will need to top up to 39%.
Trusts vs Companies vs Personal Ownership
With the trustee rate now at 39%, here’s how the main ownership structures compare:
| Structure | Tax rate on income | Tax rate on distribution |
|---|---|---|
| Trust (retained) | 39% | — |
| Trust (distributed) | Beneficiary’s rate (10.5%–39%) | — |
| Company | 28% | Beneficiary’s rate on dividends |
| Personal | 10.5%–39% | — |
| PIE fund | Up to 28% PIR | — |
Companies remain taxed at 28%, but extracting profits requires dividends (taxed again at the shareholder level, with imputation credits). The effective combined rate can be comparable to 39% for high earners, depending on the dividend strategy.
Key Takeaway
The 39% trustee rate removes the tax advantage of retaining income in a trust for high earners. Trusts still serve important roles in asset protection and estate planning — but the tax motivation for accumulating income in trusts is gone.
If you have a family trust, speak with your accountant about whether your distribution strategy, investment structure, or the trust itself needs updating for the new rate.