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New Zealand law explained for everyone

Income Tax Act 2007

Taxation of certain entities - Trusts

HC 14: Distributions from trusts

You could also call this:

“When a trust gives money or assets to someone who benefits from it”

When a trustee gives something to a beneficiary, it is called a distribution. You get a distribution when a trustee transfers value to you because you are a beneficiary of the trust. A trustee can make a distribution in different ways.

If a trustee pays you interest on an amount they owe you, it is not a distribution unless the interest is more than the market rate or the prescribed rate of interest. A distribution can be made when what is transferred belongs to you completely or is paid to you. You can get a distribution directly or indirectly, in one transaction or many.

Being a beneficiary of a trust does not mean you are giving or receiving value. A settlement for your benefit is treated as a transfer of value only if it would have been income or a taxable distribution if it had been given to you at the time, or if sections EW 50 or EZ 39 apply.

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This page was last updated on

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1517287.

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Part H Taxation of certain entities
Trusts

HC 14Distributions from trusts

  1. A trustee makes a distribution when the trustee transfers value to a person because the person is a beneficiary of the trust.

  2. Despite subsection (1), a settlement for the benefit of a beneficiary is treated as a transfer of value only—

  3. if the amount or the property being settled would have been beneficiary income of, or a taxable distribution to, a beneficiary, had it been distributed at the time to a beneficiary resident in New Zealand; or
    1. when sections EW 50 or EZ 39 (which relate to forgiveness of debt) applies, if the property being settled is an amount forgiven and treated as paid as described in section EW 44(1) or (2) (Consideration when debt forgiven for natural love and affection) or EZ 39(1).

      1. If a trustee pays to a beneficiary interest on an amount owed to the beneficiary, the payment is not a distribution by the trustee except to the extent to which the interest exceeds the amount given by the rate that is the greater of the market rate and the prescribed rate of interest.

      2. A distribution is made when what is transferred—

      3. vests absolutely in interest in the person; or
        1. is paid to the person.

          1. A distribution may be made directly or indirectly, or by 1 transaction or a number of transactions, whether related, connected, or otherwise.

          2. The fact that a person is, or will become, a beneficiary of a trust does not constitute the giving or receiving of value.

          Compare
          • 2004 No 35 s OB 1 distribution
          Notes
          • Section HC 14(2B) heading: inserted, on , by section 136(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
          • Section HC 14(2B) heading: amended, on , by section 71 of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
          • Section HC 14(2B): inserted, on , by section 136(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
          • Section HC 14 list of defined terms interest: inserted, on , by section 136(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
          • Section HC 14 list of defined terms prescribed rate of interest: inserted, on , by section 136(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).