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Family Trusts & Beneficiaries Tax File Numbers
May 2009
The 2009 Federal Budget tax measures include one item which can catch out family trusts and other discretionary trusts (including testamentary trusts). The measure is aimed at making it easier for the Tax Office to match trust distributions against the tax returns of the beneficiaries and to collect withholding tax from trusts if beneficiaries do not provide Tax File Numbers (TFN)‘s.
From 1 July 2010, the Government will also extend the current (TFN) withholding arrangements to “closely-held trusts” including family trusts. Trustees must ask beneficiaries who receive assessable distributions to provide a TFN before they receive a distribution. If a beneficiary does not provide their TFN, the trustee must deduct withholding tax from the distribution and send it to the Tax Office.
When the trust lodges its tax return it will need to include the TFN of each beneficiary who received an assessable distribution. When a beneficiary lodges their tax return they will be able to claim a credit for the tax withheld from their trust distribution.
The withholding will not apply where the trustee itself pays the tax on behalf of certain beneficiaries, (such as children under 18 years).
These new TFN and withholding tax requirements will apply to a range of discretionary trusts and “closely-held” trusts (which broadly speaking means a discretionary trust with 20 or less beneficiaries), including family trusts, discretionary trusts used in businesses and testamentary trusts established by a person’s will. They will also apply to normal deceased estate trusts which arise when executors administer an estate, but only if the estate trust continues for more than 5 years.
We recommend that trustees begin recording TFN information for all beneficiaries who receive assessable distributions in order to avoid the need to deduct withholding tax.
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