Trading Trusts in New Zealand
A trading trust is a trust structure that actively conducts business operations. Unlike a family trust that holds passive assets, a trading trust runs a business, generates income, and manages trading activities.
What Is a Trading Trust?
A trading trust:
- Operates a business
- Generates income from trading activities
- Holds business assets
- Employs staff
- Enters contracts in the trust’s name
The trustees manage the business on behalf of beneficiaries.
Why Use a Trading Trust?
Asset Protection
Separate business assets from personal wealth. If the business faces claims or creditors, your personal assets are protected.
Succession Planning
Makes transferring business ownership to the next generation easier and more tax-efficient.
Income Distribution
Flexibility to distribute profits to beneficiaries in tax-effective ways.
Limited Liability (with company trustee)
When a company acts as trustee, personal liability is further reduced.
How It Works
- Trust established with trustees and beneficiaries
- Business operates under the trust structure
- Income generated from trading activities
- Profits distributed to beneficiaries according to trustee discretion
- Assets held by the trust, not individuals
Trading Trust vs Company
| Feature | Trading Trust | Company |
|---|---|---|
| Liability | Trustees personally liable (unless company trustee) | Limited liability |
| Flexibility | High – discretionary distributions | Lower – shareholder dividends |
| Tax rate | 33% (trustee income) | 28% (company tax) |
| Compliance | Moderate | Higher (Companies Office) |
| Asset protection | Good (with company trustee) | Good |
Common Business Structures Using Trading Trusts
Retail Businesses
Shops, cafes, restaurants operating through a trust.
Professional Services
Consultants, contractors, trades operating as a trust.
Property Development
Development projects held in trading trusts.
Family Businesses
Multi-generational businesses with family beneficiaries.
Tax Considerations
Trustee Income Tax
Income retained by trustees is taxed at 33%.
Beneficiary Income
Income distributed to beneficiaries is taxed at their personal rate.
No Company Tax Benefits
Trading trusts don’t get the 28% company tax rate.
Loss Utilization
Losses can be offset against beneficiary income (with careful planning).
Asset Protection Strategy
Best Practice Structure
Company as Trustee → Trading Trust → Business Assets
This provides:
- Limited liability through the company
- Asset protection through the trust
- Flexibility in income distribution
What’s Protected
- Business equipment and stock
- Intellectual property
- Business premises
- Cash reserves
What’s Not Protected
- Personal guarantees given by trustees
- Debts incurred before transferring to trust
- Fraudulent transfers
Setting Up a Trading Trust
1. Establish the Trust
Draft a trust deed suitable for trading activities.
2. Appoint Corporate Trustee
Use a company as trustee to limit personal liability.
3. Transfer Business Assets
Move business assets into the trust (consider tax implications).
4. Register for GST
If turnover exceeds $60,000.
5. Set Up Bank Accounts
In the trust’s name.
6. Obtain IRD Number
For the trust.
7. Insurance
Ensure adequate business insurance.
Ongoing Obligations
- Annual financial statements
- Trustee resolutions documenting decisions
- Distribution minutes for income allocations
- IRD returns for trust and beneficiaries
- Trust administration and record-keeping
- Compliance with Trusts Act 2019
Costs
- Setup: $3,500 – $6,000+ (including company trustee)
- Annual compliance: $1,500 – $3,000+
- Accounting and tax: $2,000 – $5,000+ per year
- Legal reviews: $500 – $2,000 as needed
When a Trading Trust Makes Sense
- You run a business with significant risk exposure
- You want asset protection for your business
- You’re planning succession to family members
- You need flexibility in profit distribution
- You have a profitable business and want tax planning options
When NOT to Use a Trading Trust
- You’re seeking limited liability only (use a company instead)
- Your business has high risk and you can’t get company trustee (personal liability remains)
- You want the lowest tax rate (companies are 28%)
- You prefer simpler compliance
Common Mistakes to Avoid
- Not using a company trustee – Leaves trustees personally exposed
- Poor documentation – Failing to keep proper minutes and records
- Mixing personal and business – Using trust assets for personal benefit
- Ignoring Trusts Act obligations – Not following mandatory trustee duties
- No succession plan – Failing to document business transition
FAQs — Trading Trusts
Can I be both trustee and beneficiary?
Yes, but you must act in the best interests of all beneficiaries, not just yourself.
Do I need a company as trustee?
Not legally required, but highly recommended for liability protection.
How do I pay myself from a trading trust?
Through salary (as employee) or distributions (as beneficiary).
Can I sell my business in a trading trust?
Yes, the trust sells the business assets and distributes proceeds to beneficiaries.
What happens if the business fails?
Trustees may be personally liable for debts unless a company is the trustee.
Can I convert my existing business to a trading trust?
Yes, but consider tax implications and timing carefully.
Is a trading trust better than a company?
Depends on your situation. Trading trusts offer distribution flexibility; companies offer lower tax and limited liability.
Do trading trusts need audits?
Only if required by trust deed or if turnover is very high (not common).