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  • Do you need to make a TB statement?

    If you're a trustee of a closely held trust (that is not an excluded trust), you must make a correct TB statement for an income year if:

    • a share of the trust's net income is included in the assessable income of a trustee beneficiary (under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936)), and
    • the share includes an untaxed part.

    You must also make a TB statement where a trustee beneficiary is presently entitled at the end of the income year to a share of a tax-preferred amount of the trust.

    If you fail to:

    • make a correct TB statement in respect of a beneficiary when required, you're liable to pay trustee beneficiary non-disclosure tax on the untaxed part of the beneficiary's share of net income
    • report a trustee beneficiary's entitlement to a tax-preferred amount, you may be guilty of an offence under section 8C of the Taxation Administration Act 1953.

    You don't have to make a TB statement if you're within a class of trustees that we've determined by legislative instrument is not required to do so.

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    Trustee beneficiary

    A trustee beneficiary is a beneficiary of a trust in its capacity as trustee of another trust.

    Closely held trusts

    A trust is a closely held trust if it:

    • is a discretionary trust, or
    • has up to 20 individuals who, between them, directly or indirectly, and for their own benefit, have fixed entitlements to a 75% or more share of the income or a 75% or more share of the capital of the trust ('the 20/75 test')..

    However, a trust is not a closely held trust if it is an excluded trust.

    Example: 20/75 test

    'Trust A' is a unit trust that is a fixed trust. Its beneficiaries are an individual, 'Oliver', and a trustee of a discretionary trust (a trustee beneficiary). Each beneficiary holds a fixed entitlement to a 50% share of the income of Trust A.

    21157 Example 20/75

    End of example

    Trust A satisfies the 20/75 test and is a closely held trust for the purposes of the trustee beneficiary reporting rules, because fewer than 20 individuals have between them fixed entitlements to a share of 75% or more of the income.

    The trustee of a discretionary trust is taken to be an individual for the purposes of the 20/75 test in certain circumstances.

    An individual and all of the individual's relatives are taken to be one individual for the purposes of the 20/75 test.

    Excluded trusts

    Broadly, a trust will be an excluded trust if it is a:

    • complying superannuation fund
    • complying approved deposit fund
    • pooled superannuation trust
    • deceased estate (up until the end of the year of income in which the fifth anniversary of the death of the individual occurs)
    • fixed trust that is a unit trust where all of the beneficiaries are entities exempt from income tax, and have fixed entitlements to all of the income and capital of the trust
    • unit trust whose units are listed on the stock market operated by ASX Limited
    • trust that has a valid family trust election in force
    • trust that has a valid interposed entity election in force
    • trust that forms part of a 'family group'.

    Whether or not a trust is an excluded trust is considered in terms of the trust itself and not its beneficiaries.

    Example: Excluded trusts

    'Trust A' is a unit trust. The three beneficiaries of Trust A are the trustee of a complying super fund and the trustees of two discretionary trusts. Each of the discretionary trusts has made a family trust election.

    21157 Example excluded trusts

    The fact that Trust A's beneficiaries are excluded trusts doesn't make Trust A an excluded trust. It doesn't matter whether the family trust elections have the same or different 'test individuals'. Trust A would only be an excluded trust if it were itself the subject of a valid family trust election or an interposed entity election.

    Trust A will therefore be a closely held trust for the purposes of the trustee beneficiary reporting rules if it satisfies the 20/75 test.

    End of example

    Beneficiaries that are trustees of discretionary trusts

    For the purposes of the 20/75 test, a trustee beneficiary that is a trustee of a discretionary trust will be taken to be an individual, and to hold the fixed entitlement for its own benefit, if:

    • it holds a fixed entitlement to a share of the income or capital of the trust, and
    • no person holds that fixed entitlement directly or indirectly through the discretionary trust.

    Example: Beneficiaries that are trustees of discretionary trusts

    'Trust A' is a unit trust. All the beneficiaries of Trust A are trustees of discretionary trusts. Two of the discretionary trusts each hold a fixed entitlement to a 50% share of the income of Trust A. The third trustee holds a fixed entitlement to a 100% share of the capital of Trust A. No person holds a fixed entitlement, directly or indirectly, through any of the discretionary trusts.

    The trustee beneficiaries are therefore treated as individuals for the purposes of the 20/75 test.

    21157 Example beneficiaries

    Trust A satisfies the 20/75 test, and is a closely held trust for the purposes of the trustee beneficiary reporting rules, on two grounds:

    • 20 or fewer individuals have between them fixed entitlements to a 75% or more share of the income of the trust
    • 20 or fewer individuals have between them fixed entitlements to a 75% or more share of the capital of the trust.

    Either of these grounds is sufficient for Trust A to satisfy the 20/75 test.

    End of example

    Untaxed part of a share of the net income

    An 'untaxed part' of a share of net income is the relevant share of the closely held trust's net income less any part that has been taxed under:

    • subsection 98(4) of the ITAA 1936 (about certain non-resident trustee beneficiaries)
    • Subdivision 12-H in Schedule 1 of the Taxation Administration Act 1953 (about distributions of managed investment trust income)
    • Division 6D of the ITAA 1936 (trustee beneficiary non-disclosure tax).

    Example: Untaxed part of a share of the net income

    'Trust A' is a closely held trust. It has two trustee beneficiaries, the trustees of 'Trust X' and 'Trust Y'.

    The trustee of Trust X is a resident and their share of Trust A's net income is $3,000. The trustee of Trust Y is a non-resident and their share of Trust A's net income is $10,000, all of which is attributable to Australian sources.

    21157 Example untaxed part

    The trustee of Trust A is assessed and liable to pay tax on the trustee of Trust Y's share of the net income ($10,000), under subsection 98(4) of the ITAA 1936. The trustee of Trust A does not need to make a TB statement about the trustee of Trust Y or its share of Trust A's net income, because the whole of Trust Y's share has been taxed under subsection 98(4) of the ITAA 1936 – it's excluded from the trustee beneficiary reporting rules.

    The trustee of Trust A must make a TB statement about the trustee of Trust X and their share of Trust A's net income ($3,000) – that is, the untaxed part of the share of the net income of Trust A.

    End of example

    Tax-preferred amount

    A tax-preferred amount is:

    • income of the trust for trust law purposes that is not included in the trust's assessable income in working out its net income
    • capital of the trust.

    Examples of tax-preferred amounts include:

    • capital gains that are not included in the trust's assessable income (for example, capital gains made on pre-capital gains tax assets and the discount component of any discount capital gains)
    • returns of trust capital to unit holders or beneficiaries
    • non-assessable non-exempt income
    • exempt income
    • the excess of trust law income over a trust's net (or tax law) income.
      Last modified: 22 Apr 2016QC 21157