Changes in the Trustee Tax Rate

By Max Gunawan, Platinum Legal

You may have heard that the government has announced an increase in the trustee tax rate from 33% to 39%.

The change in the tax rate should not be surprising to many. The government signalled this change when it introduced a new tax bracket on personal income at 39% in the year 2021 – it was obvious to the government that family trusts were able to circumvent the new tax bracket given that trustee income was taxed at only 33%.

This convenient kink is no longer available for use after this change takes effect, at this stage, on 1 April 2024.

The changes do not appear to affect the trustee’s ability to distribute income to the various beneficiaries of the trust. Some may consider whether they ought to broaden the class of beneficiaries to whom trust income may be distributed to. This solution should be approached with caution as trustees have stringent obligations to beneficiaries under the Trusts Act 2019, including disclosure of trust information obligations under ss 49 to 55. This solution will not be right for everyone.

For many trusts, this will result in a higher tax expense which will need to be absorbed. Some may consider whether having a family trust will remain viable and consider winding down their trust altogether. We strongly urge these clients to speak to their legal advisers before doing so. For better or for worse, family trusts remain one of the best vehicles to manage your assets over a long period of time.

What appears to be clear, however, is there is a significant need for all trustees to speak to their tax advisers and ensure that their books are well in order before this tax rate change comes into effect.

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