Hon Nicola Willis

Minister of Finance

Hon Simon Watts

Minister of Revenue

Proposed changes to tax legislation to prevent the over-taxation of low-earning trusts are welcome, Finance Minister Nicola Willis says.

The changes have been recommended by Parliament’s Finance and Expenditure Committee following consideration of submissions on the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill.

“One of the purposes of the Bill is to ensure that high-income individuals pay the same rate of tax regardless of whether they earn income directly or through a trust,” Nicola Willis says.

“However, as originally drafted, the Bill would have required many lower-income trusts to pay the top tax rate of 39 cents in the dollar.

“I am delighted that the committee has accepted the Government’s advice that a $10,000 trustee income de minimis be introduced.

“This means that trusts with no more than $10,000 of trustee income per year will continue to be taxed at 33 per cent rather than the top rate of 39 per cent. As a result, only about 49,000 of the 400,000 trusts in New Zealand are likely to be impacted by the change to the top rate,” Nicola Willis says.

“Trusts with more trustee income will be subject to the 39 per cent rate on their trustee income.”

Revenue Minister Simon Watts says most trusts are not subject to the trustee tax rate because most trusts have no income due to simply owning the family home or distributing all their income to their beneficiaries as it is earned.

“In 2022, about 76,000 trusts were subject to the trustee tax rate. The committee’s proposed change will ensure that a further 27,000 trusts which earn less than $10,000 of trustee income a year will not be affected by the change to the top trust tax rate.”

The committee has also recommended simplifying and expanding the proposals relating to estates and trusts settled for disabled people to reduce compliance costs.

It has proposed that rates for estates remain at 33 per cent for the year of death and the following three income years. The committee has also recommended that the trustee rate for disabled beneficiary trusts remains at the 33 per cent rate instead of the personal tax rates of disabled beneficiaries.

In addition, the committee has recommended that energy consumer trusts and legacy superannuation funds be excluded from the 39 per cent trustee tax rate.

“The recommended changes will help prevent unintended consequences flowing from the Bill,” Mr Watts says.

The Bill will return to the House for its second reading on 19 March.

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