Withholding by trustees
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Confirm that withholding applies
Generally, if a beneficiary doesn't quote their TFN before a payment or entitlement occurs you must withhold from the payment or entitlement.
However, you don't withhold if the payment or entitlement:
- is for a beneficiary that is excluded (because the beneficiary is a non-resident, a tax-exempt entity or under a legal disability)
- is for a trustee beneficiary and you're required to make a trustee beneficiary statement under the trustee beneficiary reporting rules
- is subject to family trust distribution tax (because the trust is a family trust and the beneficiary is outside the family group)
- gives rise to a liability for you, as trustee, to pay tax under section 98
- is less than the thresholds set by the regulations – withholding is not required if the payment or entitlement is below $120 for the whole income year (or, if the payment is for part of the income year, 120 multiplied by the number of days to which the payment applies, divided by 365)
- was subject to the TFN withholding rules in an earlier year – that is, amounts that a beneficiary was presently entitled to but you did not distribute
- relates to an income year before the TFN withholding rules applied.
You're only required to withhold once when you make a payment that is subject to withholding under the investment rules and the closely held trust rules.
In these circumstances, you're required to withhold under the investment rules in priority to the closely held trust rules.
Register for PAYG withholding for closely held trusts
If you're required to withhold amounts from a beneficiary, you must register for PAYG withholding for closely held trusts purposes.
PAYG withholding registration for employment or other reasons can't be used for closely held trust purposes.
When you no longer need to withhold from your beneficiaries, you can cancel your PAYG withholding for closely held trusts registration.
When to withhold
The obligation to withhold occurs at the time the relevant payment or entitlement occurs.
If you make a payment or create an entitlement before receiving the beneficiary's TFN, you may be liable for failure to withhold penalties without having access to the amount paid to the beneficiary.
Example: Withholding at the end of the income year
The ABC Trust, which is a closely held trust, has three beneficiaries: Jo, Rhonda and Sydney Pty Ltd. The trustee has not made any payments to the beneficiaries during the income year.
At the end of the income year, the trustee of the ABC Trust resolves that each beneficiary is entitled to a share of the trust income. Jo and Rhonda quoted their TFNs to the trustee of the ABC Trust before the end of the income year, but Sydney Pty Ltd did not.
The trustee of the ABC Trust must withhold from Sydney Pty Ltd's share of the net income of the trust.
End of example
Any amounts you withhold from distributions you make during the income year will reduce the amount you would otherwise be required to withhold from an entitlement that occurs at the end of the income year for that beneficiary (see the example below).
Example : Withholding during the income year
During the income year, the trustee of the Mahoney Trust, which is a closely held trust, distributes $200 of ordinary income to each of its beneficiaries – Kate and Tamzin. Neither Kate nor Tamzin has quoted their TFN to the trustee, so the trustee is required to withhold from their payments.
At the end of the income year, the trustee of the Mahoney Trust works out:
- the trust's income for the year was $1,000 and its net income was also $1,000
- that each beneficiary is entitled to a $500 share of the trust income.
At the end of the income year Kate and Tamzin have still not quoted their TFN to the trustee. The trustee must withhold from each beneficiary's share of net income but the amount can be reduced by the amount already withheld during the year on the $200 distribution.
For each beneficiary, the trustee can subtract the $200 distribution from their total share of the net income of the trust ($500), and withhold from the balance.
The trustee must withhold for each beneficiary as follows:
End of example
- $500 (total share) – $200 (on which an amount was already withheld) = $300
- the trustee must withhold on the further $300 for each beneficiary.
Annual TFN withholding report
If you've withheld amounts from beneficiaries you must lodge an Annual TFN withholding report with us after the end of the income year.
The report must include, for each beneficiary, the totals of all:
- payments and entitlements subject to withholding
- withheld amounts.
If you were not required to withhold any amounts from beneficiaries during the income year you don't need to lodge a report for that year.
Your report is due three months after the end of your income year (for most trusts this is 30 September), unless we have given you more time to lodge.
You can lodge your Annual TFN withholding report using:
Pay withheld amounts to us
You must lodge an annual activity statement and pay any withheld amounts to us.
For most trustees the payment and activity statement are due by 28 October (that is, 28 days after the Annual TFN withholding report is due to be lodged).
Remember, if you have a withholding obligation you must register for PAYG withholding for closely held trust purposes. Once registered, you'll be required to lodge an annual activity statement and pay any amounts withheld.
Example: Making a withholding report and payment to us
At the end of the income year, the trustee of the Popper Trust, which is a closely held trust, has a withholding obligation because two of the beneficiaries:
- are each presently entitled to a $1,000 share of the trust's income, which is also their share of the trust's net income
- have not provided their TFNs.
To meet this obligation, the trustee withholds 49% (the top rate of tax) from each beneficiary's share of the net income of $1,000 – that is, $490 each ($1,000 x 0.49).
The Popper Trust Annual TFN withholding report is due on 30 September. However the trustee lodges the report early on 28 July. Despite the early lodgment of the report, the Popper Trust still has until 28 October to lodge its activity statement and pay us the $980 it withheld from the beneficiaries' shares of the net income of the trust.
End of example
Issue payment summaries
You must give an annual payment summary to each beneficiary from whom an amount has been withheld.
You must do this no more than 14 days after the due date for lodgment of the Annual TFN withholding report. So for most trustees the due date is 14 October, unless we've given you additional time.
The payment summary may be in electronic form. You don't need to send the payment summary to us.
A payment summary must contain the:
- full name of the trustee
- full name of the trust
- ABN or withholding payer number (WPN) of the trustee
- address of the trustee
- name of the beneficiary
- total of the withholding payments that it covers
- total of the amounts withheld from the payments
- income year of the trust that the payment summary is for.
In some instances, the total of the withholding payments required in the payment summary may be different from the actual distribution the beneficiary has received. In these circumstances, you should also provide the beneficiary with details of their share of the trust's net income that they need to include in their tax return.
If a beneficiary of a closely held trust doesn't quote their TFN to the trustee, the trustee must withhold from the beneficiary's payments or entitlements. When a beneficiary quotes their TFN, the trustee must tell us.