The ultimate beneficiary rules have been simplified. Trustees of closely held trusts will be required to report the details of trustee beneficiaries that are presently entitled to certain income of the trust and tax-preferred amounts in a correct trustee beneficiary statement.
The new trustee beneficiary rules generally apply to the first income year starting on or after the day on which the Bill received royal assent, 24 September 2007. For most trusts this will be the income year commencing 1 July 2008 and onward.
The ultimate beneficiary rules applied to present entitlements of net income and tax-preferred amounts created after 4.00pm on 13 August 1998. The ultimate beneficiary rules applied for the income years up to 30 June 2008.
Under these rules, trustees of closely held trusts were required to disclose to the Commissioner the identity of ultimate beneficiaries presently entitled to net income and tax-preferred amounts to which a trustee beneficiary was presently entitled. Where the trustee of a closely held trust did not correctly identify the ultimate beneficiaries of net income within the specified period, ultimate beneficiary non-disclosure tax was imposed on that part of the net income of the trust at the top marginal rate plus Medicare levy.
A statement only needs to be completed and lodged for a year of income in which a closely held trust has shares of net income, or other amounts, to which the trustee of another trust is presently entitled. Any other present entitlements of individuals or companies do not need to be accounted for on the statement.
A closely held trust includes all discretionary trusts – that is, trusts with a discretionary element – and any fixed trusts where up to 20 individuals have between them, directly or indirectly, fixed entitlements to 75% or greater share of the income or capital of the fixed trust. However, the following are not closely held trusts and so do not make ultimate beneficiary statements:
- complying superannuation funds, complying approved deposit funds and pooled superannuation trusts
- deceased estates up to the end of the year of income in which the fifth anniversary of the death occurs, and
- fixed trusts where income tax exempt bodies have fixed entitlements to all the income and capital of the trusts.
A trustee beneficiary is a person (which can be a company) that is a beneficiary of a trust in the capacity of trustee of another trust.
The Commissioner issued a media release, NAT 2000/107, on 27 November 2000 addressing this issue. It is also explained by Law Administration Practice Statement PS LA 2001/12 which was issued on 5 September 2001. PS LA 2001/12 outlines the completion and lodgment requirements as follows.
For the 1999-2000 income tax year, completion and lodgment of an ultimate beneficiary statement is required where:
- the trustee did not lodge an ultimate beneficiary statement for the 1998-99 year
- the trustee has an ultimate beneficiary non-disclosure tax (UBNT) liability for the 1999-2000 year, or
- the Commissioner requests an ultimate beneficiary statement.
If a trustee was not required to lodge an ultimate beneficiary statement in the 1998-99 year, that trustee is required to complete and lodge a statement in the 1999-2000 income tax year. The trustee may not have been required to lodge an ultimate beneficiary statement in 1998-99 where:
- the trust was newly created in 1999-2000, or
- a distribution was made to a trustee beneficiary for the first time since the ultimate beneficiary legislation was introduced.
Trustees who are required to complete and lodge an ultimate beneficiary statement in the 1998-99 year and have failed to do so, must complete and lodge the statement for that year.
For the 2000-01 to 2007-08 years, trustees indicate on the trust return if they are notionally required to lodge an ultimate beneficiary statement under the income tax legislation. This is done by confirming if a beneficiary of a closely held trust is a trustee beneficiary in the statement of distribution. However, completion and lodgment of an ultimate beneficiary statement is only required where:
- the trustee has a UBNT liability for the year under consideration, or
- the Commissioner requests an ultimate beneficiary statement.
The ultimate beneficiary rules and the administrative arrangement explained in PS LA 2001/12 apply for the income years up to 30 June 2008. PS LA 2001/12 does not apply to the new trustee beneficiary rules.
The statement is to be lodged no later than the date by which the trust return itself is required to be lodged. For self-prepared trust returns, this will be as per the Commissioner’s gazettal notice, unless an extension for lodgment of the return has been obtained.
For most trust returns which are lodged by tax agents (for example, non-taxable trusts) this will be in line with the standard agent lodgment program, unless a further extension is granted. If an extension is not granted beyond the lodgment date, the schedule must be lodged no later than that date, irrespective of the actual date the return is lodged.
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Note that the lodgment of the trust return is not dependent on the required lodgment date of any of the beneficiaries’ returns.
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The Commissioner has the power to grant extensions of time to lodge ultimate beneficiary statements. For example, the Commissioner might allow a trustee an extension of time to lodge an ultimate beneficiary statement where the trustee cannot obtain the required information from a third party by the due date.
Requests for an extension of time to lodge an ultimate beneficiary statement should include details of the trust for which the extension is requested, reason(s) for the request and the date to which the trust is requesting the extension.
A transitional rule generally applied from 1 July 2006 to 30 June 2008 to ensure that where a share of net income was taxed under subsection 98(4) of the Income Tax Assessment Act 1936 (ITAA 1936) or the new Subdivision 12-H of the Taxation Administration Act 1953 (TAA 1953), a closely held trust would not be liable to pay ultimate beneficiary non-disclosure tax on that part of the income.
The transitional rule ensured that the trustee of a closely held trust would not be liable to pay ultimate beneficiary non-disclosure tax on a share of net income under the old section 102UK or 102UM to the extent that the share had already been taxed.
If you require further information on how the old rules worked, the following links can help:
Or you can phone 13 28 66. Registered tax agents should phone 13 72 86.
Last Modified: Thursday, 30 July 2009
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