TFN withholding rules

A change to Tax File Number (TFN) withholding rules now requires the trustee of a closely held trust, to withhold from payments made to beneficiaries (individuals, trustees, companies, partnerships and superannuation funds) where they have not provided their TFN to the trustee.

The new rules apply from 1 July 2010. They are designed to allow the Commissioner to check that beneficiaries of closely held trusts have included their share of the net income of the trust in their income tax returns.

A payment is:
• a distribution from the ordinary or statutory income of the trust, or
• a beneficiary's share of the net income of a trust where they are presently entitled to a share of trust income reduced by any distributions described in the first dot point and that are reflected in the net income of the trust.

Who is affected?

The TFN withholding rules apply to closely held trusts. A closely held trust is a trust that:
• has up to 20 beneficiaries who have between them directly or indirectly fixed entitlements to a 75% or greater share of the income or capital of the trust, or
• is a discretionary trust
• is a trust that has made a family trust election or that is covered by an interposed entity election.

Beneficiaries

Beneficiaries who are non-residents and minors are excluded from the rules. Most other beneficiaries are included regardless of whether they are a company, trust or partnership.

Baker Affleck action

In preparation for the new TFN withholding rules, Baker Affleck will request TFN for beneficiaries of trusts where we do not hold the TFN.

In the meantime, if you have any questions please contact your accountant at Baker Affleck or click here to send an email with your contact details and we will contact you.