Trust Tax Rate NZ 2026: What the 39% Rate Means for Your Family Trust

New Zealand's trust tax rate increased to 39% on 1 April 2024 — matching the top personal income tax rate. If you have a family trust, this change has significant implications for how you structure distributions and whether your trust is still doing the job you set it up to do.

Here is what changed, why it happened, and what you should be reviewing now.

Prior to April 2024, trusts paid tax at a flat rate of 33% on trustee income — income retained in the trust rather than distributed to beneficiaries. That rate had been in place since 1989.

When the government introduced the 39% top personal income tax rate in 2021 (applying to income over $180,000), it created a gap: high-income earners could potentially retain income in a trust and pay 33% instead of 39%. IRD identified this as a tax avoidance risk.

From 1 April 2024, the trustee tax rate increased to 39% to close that gap.

The change affects any trust that retains income — that is, income earned by the trust that is not distributed to beneficiaries in the same income year.

If your trust:

• Earns rental income and retains it
• Holds shares or investments and retains dividends or gains
• Runs a business and retains profits

...that retained income is now taxed at 39% rather than 33%.

Trusts that distribute all income to beneficiaries are less directly affected — the income is taxed in the hands of the beneficiary at their personal rate. But the change has flow-on effects for distribution planning.

The rate increase came alongside new trust disclosure requirements that took effect for the 2022 income year. Trusts must now file detailed information with IRD, including:

• The names and details of all settlors, trustees, and beneficiaries
• All distributions made during the year
• Loans between the trust and associated persons
• Financial statements

This is a significant increase in compliance obligations. Many trusts that previously filed minimal returns now need full financial statements and detailed disclosure. If your trust has not been meeting these requirements, it is worth reviewing urgently — IRD has been actively auditing trust compliance.

The 39% trustee rate changes the calculus on when and how to distribute trust income.

Distributing to beneficiaries on lower tax rates remains attractive — if a beneficiary earns under $70,000, their marginal rate is 30% or less, so distributing to them saves tax compared to retaining income in the trust.

Distributing to beneficiaries on the 39% rate (income over $180,000) no longer saves tax compared to retaining in the trust — both pay 39%. The trust no longer provides a rate advantage for high earners.

Accumulating income in the trust is now more expensive. If your strategy was to build wealth inside the trust and distribute later, the ongoing tax cost is higher.

One area to be careful about: distributing trust income to minor beneficiaries (children under 16) is taxed at the top rate of 39% under the minor beneficiary rule. This has been the case since 2010 and has not changed — but it is worth reconfirming that any distributions to children in your trust are being handled correctly.

The 39% rate change has prompted many people to ask whether their family trust is still worth having. The answer depends on what your trust was set up to achieve.

Trusts still serve important purposes:

• Asset protection — separating personal assets from business risk
• Estate planning — controlling how assets pass to the next generation
• Relationship property — keeping assets outside the relationship property pool (subject to proper structuring and timing)
• Succession — facilitating the transfer of a family business or farm

Where trusts have lost some value:

• Pure income-splitting for tax purposes is harder now that the trustee rate matches the top personal rate
• The compliance cost has increased with the new disclosure requirements

For many families, the asset protection and estate planning benefits still justify the cost of running a trust. But if your trust was set up primarily for income tax reasons, it is worth reviewing whether the structure still makes sense.

If you have a family trust, the 2026 income year is a good time to review:

1. Are you meeting the disclosure requirements? Full financial statements and beneficiary disclosure are now mandatory for most trusts.
2. Is your distribution strategy still optimal? The 39% rate changes the tax benefit of retaining income versus distributing it.
3. Is the trust still achieving its original purpose? Asset protection, estate planning, and succession goals may still justify the structure — but it is worth confirming.
4. Are there simpler alternatives? In some cases, a company structure or direct ownership may now be more tax-efficient.

Trust tax is one of the more complex areas of New Zealand tax law, and the rules have changed significantly in the past two years. If you are unsure whether your trust is structured correctly for the current environment, contact Eastmure & Associates for a straightforward review.