TRUSTS, TAX RATES & DIVIDENDS |
We have been awaiting a clear position on the proposed tax rate for Trusts. The Coalition Government has been reviewing the Labour Governments intention to increase the Trust tax rate to 39%, to align with the top personal tax rate, as this proposal come under heavy scrutiny.
The Finance and Expenditure Committee has agreed this week that the 39% Trust tax rate will proceed and a $10,000 de minimis threshold should apply where: - trusts with trustee income of $10,000 or less will continue to be taxed at the lower rate of 33%, and
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trusts with trustee income of $10,000 or more will be taxed at the higher $39% rate.
Noting the rate is applied on an all or nothing basis i.e. trusts exceeding the $10,000 threshold will be taxed on all trustee income at 39%. Everything is pointing to the legislation applying from 1 April 2024, the start of the 2024/25 income year. |
What does this mean for you? |
You’re receiving this email because we have identified that this change potentially impacts the tax to your Trust, if it receives a dividend as a shareholder of your company/companies. |
When a company makes a profit, tax is paid, and the tax paid profits are described as retained earnings. A dividend is when the retained earnings are distributed from the company to the shareholder(s).
The dividend can be paid out in cash if there is cash available or can also be credited against the shareholder current account and is able to be taken as cash (drawings) in the future. |
Dividends may be declared for different commercial reasons. Where companies have Trusts as shareholders, and where dividends are declared prior to 31 March 2024 there may be a supplementary tax benefit that arises due to the increase of the trustee tax rate to 39%. This benefit represents a 6% future tax advantage. |
Where it appears to apply to your situation your account manager will be in touch over the next week to discuss. With the focus is whether the payment of a dividend for the 2024 income year is appropriate, the amount of the dividend and associated withholding tax costs. |
We realise this is a lot of information and if you have any concerns or questions, please don’t hesitate to reply to this email and your account manager will get in touch. |
