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Implications of the new 39% top personal tax rate

Implications of the new 39% top personal tax rate

From the current tax year in progress (ending March 2022), personal income over $180,000 will be taxed at 39%.

With the top personal tax rate at 39%, it may make sense to transfer investments held personally to a Trust. Although the new Trusts Act, which came into effect on 31 January 2021, places a more onerous burden on Trustees, Trusts can be an effective way of tax planning. Investment income is taxed at 33%  if retained in the Trust, as opposed to 39% if an individual is already earning over $180,000. A Distribution of accumulated income from a Trust, which has already been taxed at 33% as Trustee income, can be distributed tax free to a beneficiary on the high marginal tax rate of 39%.

Care needs to be taken if the investments transferred are shares, as imputation credits may be lost due to breach of continuity regulations, or tax losses brought forward could be disallowed. Another factor to be considered is where shares may be in a  company with land holdings where 50% or more of assets are in residential property, as they could be caught by the bright-line rules.

If you will be affected by the new tax rate, please call us to discuss your tax planning, as the above information is of a general nature only. We will be pleased to discuss your personalised tax scenario with you.