August 18, 2026

Family trust tax rates in NZ: who pays what and when

TaxTrusts

Many family trusts have seen higher tax bills since the trustee tax rate increased to 39% in 2024. This guide explains how trustee and beneficiary income is taxed, when the 33% rate can still apply, and why reviewing your distributions could help reduce your overall tax bill.

The trust accounts arrive, and the tax figure has jumped, though nothing about the trust itself has changed. Family trust tax rates in NZ changed from 1 April 2024, and trustee income now attracts 39%. From Katikati to Te Puke, most of the trusts we see are still running on their pre-2024 distribution plan. The rate is only half the picture, because what you do with the income each year determines the remainder.

Quick summary

The tax rates family trusts in NZ pay depend entirely on what the trustees do with the income each year. Income retained inside the trust counts as trustee income, which attracts 39%. Trusts earning $10,000 or less still qualify for the 33% rate. Income distributed to beneficiaries operates differently, because each beneficiary pays income tax at their own marginal rate rather than the trustee rate. So family trust tax isn’t a single rate covering every situation. For income tax purposes, the allocation between trustee and beneficiary income determines your overall position each tax year.

The trustee tax rate is 39%, up from 33% since 1 April 2024

Trusts have paid 39% on trustee income since the beginning of the 2025 income tax year. Before 1 April 2024, the rate was 33%, so the tax rate increase adds 6 percentage points to every dollar your trust retains. But not every trust pays the higher rate. Inland Revenue’s trustee tax rates guidance sets out the exceptions, and the main ones are below.

Remember: accurately knowing the kind of trust that you have is crucial. Because there are other categories that remain exempt from this 39% rate bump.

Situation	Rate on trustee income
Trust earns more than $10,000 in the tax year	39%
Trust earns $10,000 or less in the tax year	33%
Estate, in the year of death and the next 3 years	33%
Disabled beneficiary trust	33%, whatever the income
Energy consumer (lines) trust	33%
Legacy superannuation fund	28%
Distributions under the minor or corporate beneficiary rules	39%

That $10,000 threshold isn’t a graduated concession. Once trustee income exceeds it, the 39% rate applies to the entire amount rather than the excess.

For a trust with $40,000 of retained income, the change costs an extra $2,400.

Family trust tax rates in NZ have a considerably bigger impact when the trustees retain income instead of distributing it. Consider a trust with $40,000 of retained income. At the previous 33% rate, the tax liability was $13,200. At 39%, it becomes $15,600. That’s an additional $2,400 on identical income.

The $10,000 threshold deserves attention as well. A trust with exactly $10,000 of trustee income pays $3,300, whereas at $10,001 the liability jumps to $3,900.

Consider a Katikati family trust owning a small orchard block alongside a residential rental. It generates $60,000 annually after expenses, and the trustees have always retained the full amount. At 39%, that produces a tax liability of $23,400. However, if you allocate $30,000 to two adult children whose total income stays below $53,500, each then pays 17.5% on the $15,000 they receive. The trust continues paying 39% on the $30,000 it retains. Combined tax therefore falls to $16,950, a saving of $6,450 in a single tax year.

The math only works where the distributions genuinely suit the family. Adult beneficiaries receive actual income, so this becomes a family conversation as much as a tax calculation. It’s also worth reviewing the trust deed first, since it will govern who can actually receive a distribution and on what terms — some deeds restrict or specify how income can be allocated among beneficiaries, so any distribution needs to be checked against those terms before relying on it.

Reviewing your distribution strategy is the move to make now

Allocating income to beneficiaries is the first thing worth reviewing, because personal tax rates begin at 10.5%. Family trust tax rates in NZ don’t prevent you from distributing income. You can still distribute wherever the trust deed and your beneficiaries’ circumstances allow.

Distribute income to a beneficiary, and they include the allocation in their own tax return. Each beneficiary pays income tax on that amount at their own personal rate.

Beneficiary’s total income	Their rate
$0 to $15,600	10.5%
$15,601 to $53,500	17.5%
$53,501 to $78,100	30%
$78,101 to $180,000	33%
Over $180,000	39%

Allocating income to family members on lower rates therefore reduces the overall tax bill considerably.

A beneficiary on 17.5% pays $175 on $1,000 of beneficiary income. Retaining that same $1,000 inside the trust means paying tax of $390 instead.

That doesn’t mean distributing income to whoever happens to have the lowest rate. You need to make and record each distribution properly, then report it accurately in the family trust tax return. Specific rules also apply to other trust distributions.

New Zealand doesn’t tax most capital gains. When your trust sells an asset for more than it paid, that profit usually isn’t income at all. Some sales are caught, though, and the bright-line test on property is the common one. Where the profit isn’t taxed, trustees can pass it on as a capital distribution. For a complying trust, the beneficiary receives it tax-free, unlike beneficiary income.

There are three options that you may consider here:

Company ownership. A company pays 28% on its profits, but passing those profits to a trust shareholder can further increase tax.
PIE investments. Trustees can invest in a PIE and pay a prescribed investor rate of up to 28%. PIE income counts as excluded income, however, so you can’t pass it on like ordinary trust income.
Minors. Allocate income to a child under 16, and the trust pays 39% on it as trustee income. Amounts of $1,000 or less annually sit outside that rule.

Tax residence matters too. If a settlor or beneficiary lives overseas, different rules can apply, so check before distributing.

We’ll model the options and restructure only where it favours you

The appropriate approach depends on your own numbers rather than the 39% headline rate alone. For a trust retaining $40,000, the change is worth $2,400 annually, which is certainly enough to justify a review. Rather than assuming the structure needs changing, we’ll examine what each option actually means for you.

Ingham Mora’s trust management team works with families throughout the Western Bay of Plenty. We look after trust accounts, trust distributions and the annual tax obligations accompanying them. We’ll compare what happens if your trust retains its income against what happens if you distribute a portion of it. For that, we’ll need your latest trust accounts alongside a reasonable idea of what your beneficiaries earn.

Sometimes the saving is modest, and we’ll tell you directly rather than rearranging things unnecessarily. Tax isn’t the only consideration either. Succession planning still counts, and so does the protection assets held in a trust can give your family. Transferring assets to a trust remains a separate decision, with its own costs and rules. It doesn’t alter the tax treatment of the income once those assets sit inside the trust.

Plenty of the trusts we see were set up decades ago and haven’t been looked at since. The deed sits in a drawer, the accounts get done each year, and the income stays where it is. Most of our family trust clients start in the same place. We look at where the income currently goes, then at whether the trust structure still earns its keep.

Most of our family trust clients start in the same place. We look at where the income currently goes, then at whether the trust structure still earns its keep.

Frequently asked questions

What is the NZ trust tax rate in 2026?

Trusts pay 39% on trustee income. The 33% rate can still apply where a trust has $10,000 or less of trustee income for the tax year.

What is the 39% trust tax rate NZ?

The 39% trust tax rate NZ applies to trustee income, meaning the income trustees retain rather than distribute as beneficiary income. The rate increased from 33% on 1 April 2024.

How is beneficiary income taxed in NZ?

Beneficiary income tax NZ generally follows the beneficiary’s own marginal tax rate. A beneficiary in the 17.5% bracket pays 17.5% on the beneficiary income allocated to them.

How is a family trust taxed NZ?

Family trust tax rates in NZ operate in two layers, depending on what the trustees do with the income. Beneficiaries pay their own individual rate on anything distributed to them as beneficiary income. Whatever the trust retains counts as trustee income, attracting 39%, or 33% where trustee income totals $10,000 or less.

Do you pay tax on a trust distribution in NZ?

The type of distribution determines the treatment. A beneficiary pays tax on beneficiary income, whereas other distributions from a complying trust generally aren’t taxable. So trust distribution tax in NZ is anchored on this single question: what kind of distribution did the trustees actually make?

Where to start

Since 1 April 2024, most trusts now need to weigh in and deal with a higher trustee rate annually. It’s wise to annually review your trust at the end of the tax year, especially if it regularly retains income. Leaving income inside the trust may be the right move, or distributing some may be better.

Most of the trusts that we work with don’t require reinventing. Bring your last set of accounts and we’ll compare what the trust pays now against what it would pay if you distributed some. Get in touch and we’ll set up a free, no-obligation chat. No pressure, just a chance to talk it through.

Reach out to the Ingham Mora trust team. We’ll arrange a free, no-obligation conversation. No sales pitch, no commitment from your end, until you decide to book again.

It’s just an hour that you’ll set aside to hear from someone who does this every day.