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Family Trust Guide — Settlements, Distributions, and Tax Rules in NZ

the family trust tax rules in New Zealand. The guide covers the settlement taxation, the trustee income at the 33% rate, the beneficiary income distributions, the trust administration, and the asset protection considerations.

Trustee Tax and Beneficiary Distributions

The family trust in New Zealand is taxed under the trustee tax regime. The trustee income (the income retained in the trust) is taxed at the 33% rate. The beneficiary income (the income distributed to the beneficiaries) is taxed at the beneficiary's marginal tax rate, and the trustee may claim the deduction for the distributions. The trust may distribute the income to the lower-income beneficiaries to achieve the tax savings. The settlor rules require the disclosure of the settlor information and the foreign settlor details. The trust must file the annual IR4 tax return with the financial statements. The due date for the trust return is the 31 March following the end of the tax year. See our Trusts Guide → for the comprehensive trust rules.

Settlement, Asset Protection, and Compliance

The settlement is the transfer of the assets into the trust. The settlements by the NZ-resident settlors are generally not subject to the gift duty (abolished from the 1 October 2011). The family trust provides the asset protection — the trust assets are not the personal assets of the settlor and are protected from the creditors and the property claims, subject to the relationship property rules and the bankruptcy clawback provisions. The trust must be properly administered with the trust deed, the trustee minutes, the annual accounts, and the separate bank accounts. The IRD may review the trust arrangements for the tax avoidance. See our Estate Planning Guide → for the trust strategies.