If a trustee resolved at 30 June 2012 to distribute income to a
beneficiary for the first time the TFN Reporting requirements will
need to be satisfied by 31 July 2012. This is a two-minute summary
of the key things you need to know to comply.
In 2010, provisions were introduced placing a tax withholding
obligation on trustees of 'closely held trusts'
distributing trust income to a beneficiary who has not provided
their TFN to the trustee (TFN Withholding). The
TFN Withholding is at the top marginal tax rate and gets attributed
to the beneficiary, so some of it might be able to be clawed back
when the beneficiary lodges their income tax return and knows what
their actual tax rate is.
Importantly, the trustee does not need to make a TFN Withholding
The beneficiary notified the trustee of their TFN before the
trustee resolved to make a distribution of trust income to the
beneficiary (note – 'resolved' to do it not
'paid' the distribution over); and
The trustee has lodged a TFN Report with the Australian
Taxation Office reporting the beneficiary's TFN.
The TFN report must be lodged by the last day of the month
following the quarter in which a TFN has been received by the
trustee. So, if for example the beneficiary provided their TFN in
the quarter ended 30 June 2012, the due date for lodgement of the
TFN Report is 31 July 2012. The beneficiaries TFN
is only required to be reported in a TFN Report once.
The ATO has released a prescribed form for the TFN Report, which
can be accessed on the ATO website.
What is a 'closely held trust'?
The term 'closely held trust' for the purposes of these
provisions broadly covers discretionary trusts and unit trusts with
concentrated ownership. Some trusts are excluded from the
provisions, most relevantly:
complying superannuation funds;
deceased estates (but only until the end of the year of income
in which the fifth anniversary of the individual's death
Importantly, a trust is not excluded from the
provisions simply because it has made a family trust election.
What are the potential pitfalls?
In our view, the key thing to watch out for is distributions
that were made to companies or trusts established close to year end
of the financial year. If they did not have a TFN at the time the
distribution was made, the trustee is required to report the
withholding in its September BAS.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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