Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Taxation of certain entities - Trusts

HC 38: Beneficiary income of certain close companies

You could also call this:

“Money a company gets from a trust is taxed in a special way if the company and trust are connected.”

When a close company gets money from a trust, this section might apply to you. This happens if someone with a voting interest or market value interest in the company is connected to the trust. They might be a settlor of the trust, a trustee, or someone the settlor cares about.

This section does not apply to some companies, like a Maori authority or a tax charity. It also does not apply to income from outside New Zealand if all the company’s shareholders live outside New Zealand.

If this section applies to you, the amount of money is treated in a special way. It is excluded income for the company under section CX 58B, and it is treated as trustee income for tax purposes. The basic rate of income tax applies, as set out in schedule 1, part A, clause 16.

This section overrides some other parts of the law, like sections HC 5, HC 22, HC 23, and HC 32. But it is overridden by section CW 10, which is about dividends within a wholly-owned group in New Zealand.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

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=LMS960436.

Previous

HC 37: Testamentary trusts and minor beneficiary rule, or

"Rules for trusts set up in wills that pay money to young people"

Next

HC 39: Trustee income: disabled beneficiary trusts, or

"Tax rules for trusts that only support people with disabilities"

Part H Taxation of certain entities
Trusts

HC 38Beneficiary income of certain close companies

  1. This section applies when a close company derives an amount of beneficiary income from a trust (trust A) in an income year and a voting interest or market value interest in the close company is held, directly or indirectly, by 1 or more of the following:

  2. a settlor of trust A:
    1. the trustees of trust A:
      1. a person for whom a settlor of trust A has natural love and affection:
        1. the trustees of a trust (trust B), if a settlor of trust A has natural love and affection for a settlor or beneficiary of trust B.

          1. This section does not apply to—

          2. a close company that is a—
            1. Maori authority:
              1. tax charity:
                1. securitisation trust beneficiary:
                2. non-residents’ foreign-sourced income derived by a close company of which all shareholders are non-resident.

                  1. The amount is—

                  2. excluded income of the close company under section CX 58B (Amounts derived by certain close companies from trusts); and
                    1. treated as trustee income for the purposes of who pays the relevant 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 16.

                        1. This section—

                        2. overrides sections HC 5, HC 22, HC 23, and HC 32; and
                          1. is overridden by section CW 10 (Dividend within New Zealand wholly-owned group).

                            Notes
                            • Section HC 38: inserted, on , by section 97(1) (and see section 97(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                            • Section HC 38(2): replaced (with effect on 1 April 2024), on , by section 75(1) (and see section 75(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
                            • Section HC 38(3)(c): amended (with effect on 1 April 2024), on , by section 75(2) (and see section 75(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
                            • Section HC 38 list of defined terms non-resident: inserted (with effect on 1 April 2024), on , by section 75(3) (and see section 75(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
                            • Section HC 38 list of defined terms non-residents’ foreign-sourced income: inserted (with effect on 1 April 2024), on , by section 75(3) (and see section 75(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).
                            • Section HC 38 list of defined terms shareholder: inserted (with effect on 1 April 2024), on , by section 75(3) (and see section 75(4) for application) of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).