What is the tax rate on your earnings from trusts? The income from a trust is separated into two parts for tax purposes: beneficiary income and trustee income. Beneficiary income is all the money given to a beneficiary of the trust during the tax year, or money used for their benefit within six months of the end of the tax year. Trustee income is all income the trust earns that is not paid to or spent on the beneficiaries during that period – the money that stays in the trust fund. The New Zealand income tax rate for your beneficiary income is based on the total amount of income that you received during the year, and includes any money you may have received from a trust. The income from the trust is taxed at your usual tax rate, and therefore needs to be included in your IR3 tax return. The trustee must pay tax on behalf of the beneficiary for the income allocated to them, and then the beneficiary can claim a tax credit for the tax paid on their behalf. The beneficiary and the trustee of the trust, however, can agree not to pay the tax on the income before payment. This is called “transferred direct” income, and means that the beneficiary is responsible to pay the tax on any income received. This can be helpful in some cases, for example if there are tax losses that can be offset against income from the trust.
For minors (under 16 years of age), there are special rules. Minor income from the trust is taxed at a flat rate of 33%, but the rules don’t apply if the minor: • is not a New Zealand resident, • receives a child disability allowance • receives income from a group investment fund, the Maori Trustee or a Maori authority • turned 16 during the year • or has income of $1,000 or less in the year. If their income totals more than $1000, then all the income is subject to the minor rules.
So the beneficiary income you earn, unless you are a minor, is taxed according to the total amount of gross income that you receive, and is at the usual New Zealand income tax rates.
