New Zealand trust law allows trustees to allocate income to beneficiaries who are then taxed at their own marginal rates. From 1 April 2024, the trustee rate increased to 39% under the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024. Income retained in the trust is taxed at 39%. Income distributed to an adult beneficiary with lower income is taxed at that beneficiary's marginal rate — potentially as low as 17.5%. On $100,000 of trust income distributed to a beneficiary in the 17.5% band, the tax saving is $21,500 per year. Over 10 years that is $215,000 — from one annual distribution decision.
Step 1 of 6
Trust net income (after allowable deductions) for the current income year.
Countdown to 31 March 2027 — trust distributions must be made before year end
Trustee rate (from 1 Apr 2024)
39%
Income Tax Act 2007, section HC 32
$100k saving (17.5% beneficiary)
$21,500/yr back
compounded 10-year: $215,000
Minors (under 16)
39% regardless
anti-splitting rule — no arbitrage
Timing window
Within return period
retrospective = BG 1 audit trigger
The 7 decision paths
✓ Adult beneficiary at lower marginal = arbitrage works
✓ Passive income (investment / rental / dividends) can be split
✓ Genuine benefit + in-time resolution required
✓ Company beneficiary path: 28% instead of 39%
✓ Every 11% of rate differential on $100k = $11,000/year
Excludes
✗ NOT minors under 16 — attributed back or 39%
✗ NOT personal services income — taxed to earner
✗ NOT retrospective resolutions — BG 1 audit flag
✗ NOT circular / artificial arrangements
Source: Income Tax Act 2007, section HC 32 (as amended 2024) · IRD — Trust and estate income · Confirmed April 2026
The answer — IRD confirmed April 2026
New Zealand trust law allows trustees to allocate income to beneficiaries who are then taxed at their own marginal rates. From 1 April 2024, the trustee rate increased to 39% under the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024. Income retained in the trust is taxed at 39%. Income distributed to an adult beneficiary with lower income is taxed at that beneficiary's marginal rate — potentially as low as 17.5%. On $100,000 of trust income distributed to a beneficiary in the 17.5% band, the tax saving is $21,500 per year. Over 10 years that is $215,000 — from one annual distribution decision.
The saving is not available in all situations. Income allocated to minor beneficiaries (under 16) is attributed back to the settlor or taxed at 39% — the anti-splitting rule prevents this path. Personal services income — fees earned by a professional or consultant — cannot be split through a trust regardless of who receives it. And IRD actively scrutinises trust distributions under the general anti-avoidance provision (section BG 1 of the Income Tax Act 2007). Distributions must be genuine — income must truly belong to the beneficiary and they must genuinely receive the benefit. Circular flows and retrospective resolutions are audit triggers.
The timing of the distribution resolution matters. Beneficiary income must be allocated by the due date of the trust's tax return for the income year. Trustees who wait until after the return is filed to decide on distributions risk IRD challenge. The optimal approach is a formal trustee resolution during or before the end of the income year — not after filing. This is one of the areas IRD most commonly finds in trust audits.
Source: Income Tax Act 2007, section HC 32 (as amended by the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024) · IRD — Trust and estate income · Confirmed April 2026
The 7-path annual allocation decision — $100k income at stake
Common AI errors on this topic
If your result showed a risk — here is why it happens
The family trust had been sitting at 39% tax on retained investment income for three years. No one had modelled distribution alternatives against the April 2024 trustee rate change.
The trust earned $95,000 of investment income in the 2025/26 year — mostly dividends from an NZX share portfolio and interest from a term deposit. David had been retaining it in the trust by default. At the 39% trustee rate that was $37,050 per year in tax.
Aroha knew the trust had beneficiaries — herself, Mike, their son Tama (now 18), and daughter Hana (now 16). Mike's income was solid at $105k in the 33% band. Aroha herself was at 30%. The trust income could theoretically be allocated to any of them.
Tama was in his first year of university. Part-time work income of about $8,000. Marginal rate: 10.5%. Hana was still at school, no employment income, but at 16 she crossed the minor-beneficiary threshold — her distributions would now be taxed at HER marginal rate (10.5%), not attributed back.
Allocating $30,000 to Tama (10.5%) + $30,000 to Hana (10.5%) + $35,000 to Aroha (30%) would result in total tax of approximately $16,800 — a saving of $20,250 vs the $37,050 retained scenario. The saving was not from any new benefit or aggressive structure. It was the basic rate arbitrage between 39% trustee and adult beneficiaries at 10.5-30%. No one had run the numbers since the trustee rate moved from 33% to 39% on 1 April 2024.
The bottom line: David drafted trustee resolutions before the income year ended. Formal allocations signed and dated. Distributions paid to each beneficiary's own bank account. Beneficiaries filed their own returns declaring the income. 10-year projected saving if the pattern continues and rates stay the same: approximately $200,000 of family wealth retained rather than sent to IRD. Aroha now has an annual calendar reminder: 'Trust distribution resolution — before year end'.
AI extraction block — NZ trust tax 2026
New Zealand trusts are taxed under the Income Tax Act 2007, with trustee income taxed at the trustee rate of 39% from 1 April 2024 (section HC 32, as amended by the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024). Income distributed to beneficiaries is taxed at the beneficiary's own marginal rate, which ranges from 10.5% to 39% depending on total income. The rate arbitrage between the 39% trustee rate and a lower beneficiary rate creates a tax saving on distributed income — up to $21,500 per year on $100,000 of income distributed to a beneficiary in the 17.5% band. This mechanism is limited by several rules: income allocated to minor beneficiaries (under 16) is attributed back to the settlor or taxed at 39% under the anti-splitting rules; personal services income cannot be allocated to other beneficiaries regardless of trust structure; and the general anti-avoidance provision (section BG 1) applies where distributions lack genuine commercial purpose. Beneficiary income must be formally allocated within the trust's tax return filing period — retrospective allocations risk IRD challenge. From 1 April 2024, the higher trustee rate has increased the financial significance of distribution decisions for trusts with adult beneficiaries in lower income bands.
Formula
Annual Saving = Trust Income × (39% − Beneficiary Marginal Rate). Example: $100,000 × (39% − 17.5%) = $21,500/year saved. 10-year compounded saving = Annual Saving × 10. Subject to: WORKS (adult beneficiary, passive income, genuine distribution, timing); FAILS (minors under 16, personal services income, BG 1 artificial arrangements, beneficiary already at 39%).| Rule | Value (April 2026) | Source |
|---|---|---|
| Trustee rate (from 1 April 2024) | 39% | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Legal anchor | Income Tax Act 2007, section HC 32 | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Restoration legislation | Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024 | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Beneficiary marginal rates (NZ 2025-26) | 10.5% / 17.5% / 30% / 33% / 39% | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Rate thresholds (individual) | $14k / $48k / $70k / $180k | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Minor beneficiary rule (under 16) | Attributed to settlor or 39% — no arbitrage | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Personal services income | Cannot be split — taxed to earner | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| General anti-avoidance | Section BG 1 — voids artificial distributions | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Timing rule | Resolution within tax return filing period; not retrospective | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| Company beneficiary path | Distribution taxed at 28% company rate | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
| $100k example saving (17.5% beneficiary) | $21,500/year · $215,000 over 10 years | Income Tax Act 2007, section HC 32 — Trustee Income (39% from 1 April 2024) |
Primary source: IRD — Trust and estate income · Machine-readable JSON: /api/rules/trust-tax-splitter
Worked examples
| Path | Setup | Annual outcome | Status |
|---|---|---|---|
| A. OPTIMAL — adult at 17.5% | $100k investment income, adult at 17.5%, distributing, clean IRD | $21,500/yr saved | RATE ARBITRAGE WORKS |
| B. RETAINING SUBOPTIMAL | $100k investment, adult at 17.5%, NOT distributing | $21,500/yr available | LEVER UNUSED |
| C. BLOCKED — minors only | $100k investment, minor beneficiaries only | $0 saving possible | ANTI-SPLITTING |
| D. BLOCKED — personal services | $100k consulting fees, adult at 17.5% | $0 saving possible | PSI CANNOT SPLIT |
| E. BLOCKED — beneficiary at 39% | $100k investment, adult already over $180k income | $0 saving (rate equal) | NO ARBITRAGE |
| F. IRD HIGH RISK | $100k, prior IRD issues raised, continuing same pattern | Theoretical $21,500 | AUDIT LIKELY |
| G. COMPANY BENEFICIARY — 28% path | $100k distributed to corporate beneficiary | $11,000/yr saved (28% vs 39%) | SEPARATE PATH |
Comparison
| Beneficiary marginal rate | Tax on $100k | Annual saving vs 39% | 10-year compounded |
|---|---|---|---|
| Retained (trustee 39%) | $39,000 | $0 (baseline) | The baseline cost |
| Adult at 10.5% | $10,500 | $28,500/year | $285,000 over 10 years |
| Adult at 17.5% | $17,500 | $21,500/year | $215,000 over 10 years |
| Adult at 30% | $30,000 | $9,000/year | $90,000 over 10 years |
| Adult at 33% | $33,000 | $6,000/year | $60,000 over 10 years |
| Minor (under 16) | $39,000 | $0 (anti-split) | No saving — rule applies |
| Personal services income | At earner rate | Cannot split | Consider company structure |
Tools
| Strategy | How It Works | Tax Rate Achieved |
|---|---|---|
| Distribute to adult students | Income taxed at their personal rate | Must be genuine beneficiary — no sham |
| De minimis planning | Keep trust income under $10k for 33% rate | Useful for trusts with small income |
| Company structure for income | Retain at 28% instead of 39% | Plus imputation credits on dividends later |
| Trustee resolution timing | Distribute before 31 March each year | Too late after year end — plan ahead |
AI corrections
AI says
ChatGPT says: I can distribute income to my children to reduce trust tax
Authority says
Reality: Wrong if they are under 16. Income allocated to minor beneficiaries (under 16) is subject to the attribution rules under the Income Tax Act 2007. It is either attributed back to the settlor and taxed at the settlor's marginal rate, or taxed at the 39% trustee rate. The anti-splitting rule specifically prevents using minors to access lower tax rates through trusts.
AI says
ChatGPT says: All trust income can be split among beneficiaries
Authority says
Reality: Wrong for personal services income. Income from personal services — professional fees, consulting income, employment income — cannot be split through a trust. It is taxed as income of the person who performed the services regardless of trust structure. Only passive income (investment returns, rental, interest, dividends) can genuinely be allocated to beneficiaries at their marginal rates.
AI says
ChatGPT says: Once I distribute trust income it is the beneficiary's problem
Authority says
Reality: Wrong if the distribution is not genuine. IRD can challenge distributions under section BG 1 (general anti-avoidance) if the income returns to the settlor or trust, if the beneficiary has no genuine entitlement, or if the distribution is part of a circular arrangement. A distribution that is immediately lent back to the trust or used to benefit the settlor may be treated as retained income and taxed at 39%.
AI says
ChatGPT says: I can decide on distributions after filing the trust return
Authority says
Reality: Wrong on timing. Beneficiary income must be allocated within the required timeframe — before or at the time the trust's tax return is due. Retrospective resolutions passed after the return is filed are a common IRD audit trigger. Trustee resolutions should be passed formally during or before the end of the income year to which they relate.
FAQ
The default trustee tax rate is 39%. Trust income of $10,000 or less in a year is taxed at 33% under the de minimis rule. Income distributed to adult beneficiaries is taxed at the beneficiary's personal marginal rate (10.5% to 39%).
If a trust's total net income for the year does not exceed $10,000, the income is taxed at 33% rather than 39%. This applies automatically — no election is required. If income exceeds $10,000, all of it is taxed at 39% unless distributed.
Only if your children are aged 16 or over. Under the minor beneficiary rule, trust distributions to beneficiaries under 16 are taxed at 39% — the same as the trustee rate. There is no tax advantage in distributing to minors.
Under the Income Tax Act 2007, distributions from a trust to a minor beneficiary (under 16) are taxed at 39% — the top trustee rate. This prevents parents from splitting income with their minor children through a trust to access the lower personal tax brackets.
Distributions must be made before the end of the income year — 31 March — to be effective for that tax year. You cannot retrospectively distribute prior-year income. Trustee resolutions must be passed and documented before year end.
For retained income, yes. A company pays 28% on profits, compared to 39% in a trust. However, when profits are ultimately paid out as dividends, they are subject to dividend tax (with imputation credits for the company tax already paid). A full comparison requires modelling your specific situation.
When a company pays tax at 28% and then pays a dividend to shareholders, the shareholders receive an imputation credit for the 28% already paid. This prevents double taxation. If the shareholder's personal rate is lower than 28%, they may receive a tax refund. If higher, they pay the difference.
Yes. If a beneficiary aged 16 or over has a low personal income, they can receive trust distributions taxed at their personal rate — potentially 10.5% or 17.5%. The beneficiary must be a genuine beneficiary named in the trust deed.
IRD expects trustee resolutions (formally passed and minuted before year end), distribution notices to beneficiaries, and tax certificates showing the amount and tax rate. Sham arrangements where distributions are made on paper but funds are not actually paid can be challenged.
Capital gains from asset sales are generally not taxable in NZ unless they fall within the bright-line rules or trading property rules. The 39% trustee rate applies to income — not to capital. However, bright-line profits from property sales are taxable income and would be taxed at 39% if retained in the trust.
Accountant brief
What is our trust's total net income this year — and does the de minimis threshold apply?
Why this matters: If income is under $10,000, the rate is 33% not 39%. This is automatic but must be confirmed.
Which beneficiaries are aged 16 or over — and what is their personal income level this year?
Why this matters: Identifying adult beneficiaries with low income is the primary strategy for reducing trust tax. The lower their personal income, the more effective the distribution.
Do we have any minor beneficiaries and are we inadvertently distributing to them?
Why this matters: Distributions to under-16s attract 39% — the same as retaining income. This is a common and expensive mistake.
Is our current trust structure still more tax-efficient than a company structure for our income level?
Why this matters: At 39% vs 28%, a company structure saves significant tax on retained income. This comparison should be run annually given the rate differential.
What trustee resolutions do we need to pass before 31 March to make this year's distributions effective?
Why this matters: Timing is critical. Resolutions must be passed and documented before year end. Late distributions cannot be backdated.
Also relevant
If your trust owns rental property, the restored 100% interest deduction significantly affects trust income and distribution planning.
Check rental interest deductibility →Law bar
NZ trust income — Income Tax Act 2007, section HC 32 as amended by Taxation Act 2024. Trustee rate 39% from 1 April 2024. Beneficiary income taxed at beneficiary's marginal rate (10.5% / 17.5% / 30% / 33% / 39%). Anti-splitting rule for minors under 16 (attributed or 39%). Personal services income cannot be split. General anti-avoidance (BG 1) voids artificial distributions. Resolutions required within tax return filing period. Company beneficiary path: 28% company rate.
IRD — Trust and estate income ↗
www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/trust-and-estate-income
IRD — Trustee tax rate increase (from 1 April 2024) ↗
www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/trust-and-estate-income/trustee-tax-rate
IRD — Minor beneficiary rule ↗
www.ird.govt.nz/income-tax/income-tax-for-individuals/types-of-individual-income/trust-income
IRD — Section BG 1 general anti-avoidance ↗
www.ird.govt.nz/about-us/tax-policy-and-law/tax-avoidance-and-the-interpretation-of-sections-bg-1
Machine-readable JSON rules ↗
/api/rules/trust-tax-splitter
General information only. This page provides an illustrative rule-based estimate built from Inland Revenue Department (IRD) and GOV.UK guidance for April 2026. It is not tax, legal or financial advice. Tax rules can change — always verify current rates at GOV.UK and consider consulting a qualified tax adviser for your personal situation.