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
If you fail to 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:
- the closely held trust
- has a valid family trust election in force
- has a valid interposed entity election in force
- forms part of a 'family group'
- 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.
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.
Whether or not a trust is an excluded trust is considered in terms of the trust itself and not its beneficiaries.
The 20/75 test
An individual and all of their relatives are taken to be one individual for the purposes of the 20/75 test.
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 three beneficiaries of Trust A are trustees of discretionary trusts. The trustees of two of the discretionary trusts each hold a fixed entitlement to a 50% share of the income of Trust A. The trustee of the third discretionary trust 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.
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:
- Twenty or fewer individuals have between them fixed entitlements to a 75% or more share of the income of the trust.
- Twenty 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 exampleUntaxed 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.
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 exampleTax-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.