Appendix 12: Closely held trust reporting

If you are the trustee of a closely held trust (that is not an excluded trust) you may need to provide annual reports to the Commissioner under the trustee beneficiary reporting rules and/or the TFN Withholding Rules.

You can provide both of these reports by completing the statement of distribution at item 65 in the Trust tax return.

What is a closely held trust?

A closely held trust is:

• a trust where 20 or fewer individuals have between them, directly or indirectly, and for their own benefit fixed entitlements to 75% or more of the income or capital of the trust, or
• a discretionary trust

except where the trust is an excluded trust.

See section 102UC(1) of the ITAA 1936.

The types of trusts that qualify as excluded trusts will vary depending on which of the reporting rules for closely held trusts apply.

What is a discretionary trust?

A discretionary trust is a trust that is not a fixed trust within the meaning of section 272-65 of Schedule 2F to the ITAA 1936. See also section 102UC(4) of the ITAA 1936.

TFN Withholding Rules for closely held trusts

If you are the trustee of a resident closely held trust (that is not an excluded trust) you will need to complete an annual trustee payment report under the TFN Withholding Rules.

What is an excluded trust for the TFN Withholding Rules?

An excluded trust is:

• a complying super fund, complying approved deposit fund or a pooled superannuation trust
• trusts of deceased estates (until the end of the year of income in which the fifth anniversary of the individual's death occurred)
• fixed trusts that are unit trusts where exempt entities have fixed entitlements to all the income and capital of the trust.

(See subsections 102UC(1) and (4) of the ITAA 1936 and section 272-100 of Schedule 2F of the ITAA 1936.)

The Regulations also exclude the following types of trusts from these rules:

• a trust that is a discretionary mutual fund according to the meaning given by subsections 5(5) and 5(6) of the Financial Sector (Collection of Data) Act 2001
• an employee share trust for an employee share scheme that meets the definition under subsection 130-85(4) of the Income Tax Assessment Act 1997 (ITAA 1997)
• a law practice trust which is a trust regulated by a state or territory law for the regulation of legal practices or legal services.

Annual Trustee Payment Report

Unless you are the trustee of an excluded trust, you will need to complete an Annual Trustee Payment Report under the TFN Withholding Rules.

What is an Annual Trustee Payment Report?

An Annual Trustee Payment Report is a report of all payments made to a beneficiary during an income year from the trust's income, whether or not withholding has occurred.

A payment is a:

• distribution from the ordinary or statutory income of the trust, or
• beneficiary's share of the net income of a trust where they are presently entitled to a share of trust income.

How do I make an Annual Trustee Payment Report?

You make an Annual Trustee Payment Report by completing in full the information on the statement of distribution for each beneficiary, including the beneficiary identity details.

If you have

• made a distribution from statutory or ordinary income during the income year that is not reported elsewhere on the distribution statement, or
• withheld from any payments (which includes any present entitlement) you have made

then you will also need to complete the entries under Annual Trustee Payment Report information.

Example

The trustee of a closely held trust has income of the trust estate of $10,000. The trust has three beneficiaries:

• Beneficiary 1 quoted their TFN to the trustee and was presently entitled to $6,000 of the income of the trust estate.
• Beneficiary 2 quoted their TFN to the trustee and received a distribution of $2,000 from statutory or ordinary income during the income year that was not included in the trust's net income.
• Beneficiary 3 did not quote their TFN to the trustee and received a distribution of $2,000 from statutory or ordinary income during the income year that was included in the trust's net income. Beneficiary C was also presently entitled to $4,000 of the income of the trust estate (which included the $2,000 distributed during the income year).

To correctly complete an Annual Trustee Payment Report you need to complete the identity details of the beneficiary in full and for:

• beneficiary 1, complete the relevant income entries (at A, B, F, G, H) and apportion the $6,000 appropriately
• beneficiary 2, complete S and include an amount of $2,000 (this is not reported elsewhere on the distribution statement)
• beneficiary 3, complete the relevant income entries (at A, B, F, G, H) and apportion the $4,000 appropriately
• beneficiary 3, complete T for the amount withheld $1,860 (4,000 x 46.5%).

Trustee beneficiary reporting rules

A trustee of a closely held trust (that is not an excluded trust) is required to complete and lodge a TB statement for a year of income if a share of the net income of the trust is included in the assessable income of a trustee beneficiary under section 97 of the ITAA 1936 and the share comprises or includes an untaxed part.

A TB statement must also be lodged where a trustee beneficiary is presently entitled to a share of a tax preferred amount of the closely held trust.

A trustee beneficiary is a beneficiary of the trust in the capacity of trustee of another trust.

What is an excluded trust for the trustee beneficiary reporting rules?

An excluded trust is a:

• complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust
• deceased estate, up to the end of the income year in which the fifth anniversary of the death occurs
• fixed trust that is a unit trust, and exempt entities (entities whose ordinary and statutory income are exempt from tax) have fixed entitlements, directly or indirectly, and for their own benefit, to all of the income and capital of the trust
• unit trust whose units are listed on the ASX Limited
• family trust, or
• trust that has made an interposed entity election under section 272-85 of Schedule 2F to the ITAA 1936 or is wholly owned by the family (see section 272-90(5) of Schedule 2F to the ITAA 1936).

See section 102UC(4) and section 272-100 of Schedule 2F to the ITAA 1936.

How do you make a TB statement?

You make a TB statement by completing the statement of distribution in full for each trustee beneficiary including the beneficiary details and the TB statement information.

What is a tax-preferred amount?

A tax-preferred amount is income of the trust that is not included in the assessable income in working out its net income; or capital of the trust.

What is an untaxed part of a share of net income?

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

• subsection 98(4) of the ITAA 1936
• Subdivision 12-H in Schedule 1 to the Taxation Administration Act 1953
• Division 6D (trustee beneficiary non-disclosure tax) in respect of which the trustee of another trust estate is liable to pay the non-disclosure tax.

An untaxed part of a share of net income includes interest, dividends or royalties that have been subjected to a withholding tax if these amounts are included in the assessable income of a non resident trustee beneficiary.

Example 12.1

The trustee of Trust A (a closely held trust) has net income of $10,000. The trust's distributable income is also $10,000. The trust has three trustee beneficiaries:

To make correct TB statements for the trustee beneficiaries, the trustee of Trust A would report:

The reporting obligations under Division 6D apply to both Australian and foreign source income however Australian source income which is taxed under section 98(4) of the ITAA 1936 is not included as an untaxed part of a share of net income. If the share of the net income which is included in the assessable income of a non resident trustee beneficiary includes income from a foreign source, then that foreign source income is an untaxed part of a share of net income and must be reported in a TB statement.

For further details of what amounts comprise an untaxed part of a share of net income or a tax-preferred amount, see the fact sheet Trustee beneficiary rules.

End of further information

Trustee beneficiary non-disclosure tax

If you do not correctly complete the TB statement in the statement of distribution you may be liable for TBNT.

The trustee of a closely held trust may also be liable for TBNT where a share of the trust's net income of a closely held trust is included in the assessable income of a trustee beneficiary under section 97 of the ITAA 1936 and the trustee of the closely held trust becomes presently entitled to an amount that is reasonably attributable to the whole or a part of the untaxed part of the share (referred to as a 'round robin' or 'circular distribution').

TBNT is currently imposed at the rate of 46.5%.

For further information on the TB reporting rules, see the fact sheet Trustee beneficiary rules.

End of further information