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New Zealand law explained for everyone

Income Tax Act 2007

Taxation of certain entities - Trusts

HC 7: Trustee income

You could also call this:

“Income earned by a trust that isn't given to beneficiaries”

If you have income that comes from a trust, it’s called trustee income if it’s not beneficiary income. This means the money that the trust earns that doesn’t go directly to the people who benefit from the trust.

Sometimes, when a young person (called a minor) gets beneficiary income, it’s treated differently. In these cases, it’s handled like trustee income for tax purposes. This means the trustee, not the young person, has to pay the tax and report it. The tax rate for this income is set at a specific level.

There’s also a special rule for some other types of beneficiary income. Again, it’s treated like trustee income for tax purposes, with the trustee handling the tax and reporting. It’s taxed at the same rate as the income for minors mentioned earlier.

If a trust gets property as part of a settlement, this can also count as trustee income. The value of this income is calculated by taking the market value of the property and subtracting any part that the trustee treats as beneficiary income or as a taxable distribution.

Remember, these are just general explanations. If you need to know more about how these rules apply to you, it’s a good idea to ask for help from someone who knows a lot about tax laws.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517266.

Topics:
Money and consumer rights > Taxes
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Part H Taxation of certain entities
Trusts

HC 7Trustee income

  1. To the extent to which it is not beneficiary income, an amount of income derived by a trustee of a trust is trustee income.

  2. An amount of beneficiary income to which section HC 35 applies that is derived in an income year by a person who is a minor is—

  3. treated as trustee income for the purposes of who pays the tax and who provides the return of income; and
    1. subject to the basic rate of income tax set out in schedule 1, part A, clause 3.

      1. An amount of beneficiary income to which section HC 38 applies is—

      2. treated as trustee income for the purposes of who pays the tax and who provides the return of income; and
        1. subject to the basic rate of income tax set out in schedule 1, part A, clause 3.

          1. The trustee of a trust has, from a property settlement that is referred to in section HC 4(3) to (5) and made in an income year, an amount of trustee income for the income year equal to the market value of the property settlement reduced by the amount of the market value that the trustee treats as beneficiary income, or as a taxable distribution made by the trustee, in the income year.

          Compare
          Notes
          • Section HC 7(2): replaced, on , by section 88(1) (and see section 88(4) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
          • Section HC 7(2B) heading: inserted, on , by section 88(2) (and see section 88(4) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
          • Section HC 7(2B): inserted, on , by section 88(2) (and see section 88(4) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
          • Section HC 7(3): replaced (with effect on 1 April 2008), on , by section 134(1) (and see section 134(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
          • Section HC 7 list of defined terms tax: inserted, on , by section 88(3) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
          • Section HC 7 list of defined terms taxable distribution: inserted (with effect on 1 April 2008), on , by section 134(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).