If you’re getting money from a trust that’s based in New Zealand, that trust will usually deduct any tax before they pay you.
Paying tax on beneficiary income
In most cases, any tax you pay on your beneficiary income will be at your personal income tax rate. Special rules apply for beneficiaries under the age of 16 and corporate beneficiaries.
If you receive a distribution from a trust, it cannot include any losses.
If you receive some, but not all, of a trust’s income from a source that earned tax credits, you should receive the same share of the tax credits that you do of the original income source.
Beneficiaries under the age of 16
Beneficiaries under the age of 16 are known as minor beneficiaries.
If your trust has been settled by a relative or someone with legal guardianship of a minor beneficiary, any income the trust distributes is taxed differently. If your trust distributes income to a minor beneficiary, that income is usually taxed as trustee income at the rate of 39%, not as beneficiary income.
There are a few exceptions.
- The trust distributes $1,000 or less to the minor beneficiary in a tax year.
- The minor beneficiary (or their parent or guardian) is getting a disability allowance or a child disability allowance.
- The trust exists to handle a deceased person’s estate.
- The income comes from a Māori authority.
- The trust is a disabled beneficiary trust.
Corporate beneficiaries
In most situations, if a company is the beneficiary of a trust, any income is taxed at the company’s tax rate. However, if your company is a close company, income may be taxed at the trustee income tax rate of 39%.
Your close company’s beneficiary income may be taxed at the trustee income tax rate if a settlor of the trust is any of these.
- A shareholder in the close company.
- A relative of a shareholder of the company.
- Married to a shareholder of the company.
- In a long-term relationship to a shareholder of the company.
- A close friend of a shareholder of the company.
The trustee income tax rate does not apply if the trust was settled for handling debt securities, known as securitisation trusts.
Exclusions to the corporate beneficiary rule
The corporate beneficiary rule will not apply to foreign sourced income earned by non-resident companies with no New Zealand shareholders.
The corporate beneficiary rule will not apply to a trust’s dividend income if the payer of the dividend and the recipient of the beneficiary income are both companies in the same wholly-owned group (under section CW 10 of the Income Tax Act 2007).
From 1 April 2024 income that falls under the corporate beneficiary rule is excluded from section HC 26 of the Income Tax Act, where it would have been exempt income.
If you are a corporate beneficiary, you may sometimes have distributions that fall under the corporate beneficiary rule, and others that do not. The trust return needs to be completed in a specific way to ensure both kinds of distributions are taxed correctly. More information is in the IR288 Guide - Trust and estate income tax rules on this page.
Special report
You can find more information on our tax policy site.