The law of Trusts has undergone a significant update in the past few years.

Firstly, the Trusts Act 2019 came into effect in January 2021. The new Act reformed Trust law and brought it up to date by providing mechanisms to resolve trust disputes, providing Trust administration rules, setting out core trust law principles and aims to make Trust law more accessible and transparent. Key changes included introduction of clearly stated trustee duties, extending the maximum trust duration to 125 years and setting out the presumption of disclosure of Trust information to beneficiaries.

Additionally, new Taxation legislation came into effect in December 2020 regarding disclosure requirements for Trusts for tax purposes. Since April 2021 most Trusts are now required to provide Inland Revenue with annual financial reporting. This financial reporting includes a statement of profit and loss, a balance sheet and any other information as specified by Inland Revenue.

More recently the trust income tax rate has been raised from 33% to 39% for the 2024–25 income year and beyond. Along with this change there are some specific new rules required to mitigate potential over-taxation. The most beneficial will be that the 33% rate will still apply to trustee income that does not exceed $10,000 after deductible expenses. Additionally, there are targeted rules for trusts related to deceased estates and those established for disabled individuals, as well as exclusions for energy consumer trusts and legacy superannuation funds.

Furthermore, the change also introduces a measure to reinforce the new 39% rate by applying it to beneficiary income derived from certain close companies. This adjustment ensures that income from these companies will also be taxed at the 39% trustee rate, aligning with the updated tax policy.

It is worth noting that for Beneficiaries the tax thresholds remain unchanged for income from $78,100 up to $180,000 to be still taxed at the 33% rate. But careful attention is needed regarding the minor beneficiary rule and the $25,000 deemed settlor rules also.

For Portfolio Investment Entity (PIE) investments, a 28% tax rate will remain in effect meaning with some tax planning opportunities the impact of the 39% rate could be mitigated to some extent.

These changes have generally prompted a comprehensive review of Trusts, their administration, financial reporting, purpose and future. If you’d like to discuss your Trust administration and/or financial reporting requirements please get in touch with our dedicated Trust, Governance & Companies team.

Written by Megan Potter and Rory Noorland.