In the 2023 tax year, the income of trusts and estates from filed IR6 returns totalled $20.0 billion. This is an increase of 1.9% since 2022.
Graph of income of trusts and estates IR6 returns
Over the period 2001 to 2023, trusts and estates have typically received between 40% to 70% of their income as imputed dividends from companies. Much of the volatility in trustee income seen over the 2001 to 2023 period is because of volatility in dividends paid by companies to their shareholders.
Between the 2001 to 2010 tax years, trustee income grew by 420% ($8.3 billion). The growth in income between 2001 and 2010 was driven by both an increase in the volume of trusts filing returns, which increased by 87,300 over that period, and by the aggregate value of dividends received.
In the 2009 tax year the company tax rate dropped from 33% to 30%. The company tax rate dropped again in the 2012 tax year to 28%.
Following both changes to the company tax rate, companies could attach imputation credits to dividends with reference to the higher preceding company tax rates for an additional two years. The changes in the company tax rate and the ability to impute dividends at a higher rate for a short period resulted in a spike in trustee income in the 2010 and 2013 tax years as companies temporarily increased their dividend payments to their shareholders.
Trustee income dropped substantially in the years following the higher dividend payments (2011 and 2014 tax years) as firms adjusted their dividend distributions after the higher pay-outs in the preceding years.
From 1 April 2021, the personal income tax scale changed with the introduction of a higher rate of 39% for people with income over $180,000. The growth in trustee income in the preceding 2021 tax year reflects high profitability and high dividend payouts in that year.
There was an additional incentive for companies to pay out current and/or previous years retained earnings as imputed dividends to their shareholders, including trusts, prior to the introduction of the 39% top personal tax rate. The increase in dividends received by trusts was generally taxed at the trustee income tax rate of 33% with the relative amount of income allocated to trustees (rather than beneficiaries) increasing from 62% in 2020 to 71% in 2021.
In the 2023 tax year, trustee income increased by 3.5% to $14.9 billion. Income allocated to beneficiaries fell by 2.5% to $5.1 billion. As a result of an increase in trustee income and a decrease in the income allocated to beneficiaries, the share of income allocated to trustees increased further from 73% in 2022 to 74% in 2023. This continued higher relative allocation to trustees may reflect that since the introduction of the 39% personal tax rate in 2022, there is now a tax advantage in treating income as trustee income at the 33% tax rate rather than beneficiary income taxed at personal rates.