A much talked about topic for Trusts of late is the trust income tax rate change. From the 2024/2025 income year onwards, the Trust tax rate that applies to trustee income has raised from 33% to 39%.

Along with this change there are some specific new rules required to mitigate potential over-taxation:

• The 33% rate will still apply to trustee income that does not exceed $10,000 after deductible expenses;
• 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 by certain close companies. This adjustment ensures that income for 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.

If you have any questions regarding these changes and rules feel free to get in touch with our team.

Written by Megan Potter and Rory Noorland.