Guide on Trust Funds – Part 20
The Annual Trustee Payment Report
Commencing on 1 July 2010, new sections 12-175 and 12-180 were inserted into the Taxation Administration Act 1953 (‘TAA’). The main effect of these new sections is to require a trustee (of a closely held trust to withhold an amount from distributions or present entitlements, where the beneficiary has not quoted their TFN to the trustee.
Notwithstanding that a trustee is not required to withhold any amounts under S.12-175 or S.12-180, they are still to require to submit a report in the approved form to the ATO. Specifically, S.16-152(3) of the TAA provides that a report must be given if the trustee would have been required to withhold an amount if the beneficiary had not quoted their TFN.
The report must be given to the ATO by the time the trust lodges its tax return for the year. If the trust completes all the relevant labels in the ‘Statement of distribution’ for each beneficiary, the Annual Trustee Payment Report (‘ATPR’) will be taken to have been lodged in the approved from and on time.
When does S.12-175 apply?
This section applies where a trustee makes a distribution to a beneficiary who has not quoted their TFN at the time of the distribution (the beneficiary must be a resident and not under a legal disability and the trustee must not be liable to be assessed under S.98).
For the purposes of the above section, a distribution includes not only a physical payment to the beneficiary but also an amount applied for the benefit of, or on behalf of, the beneficiary. For example, the trustee pays a private expense of the beneficiary. Refer to S12-175(30)
Note: If the distribution is of an amount the beneficiary was presently entitled to in an earlier year, S.12 – 175 has no application. Refer to S12 – 175(4)
When does S.12-180 apply?
This section applies where, at the end of the income year, a beneficiary is presently entitled to a share of the trust income and the beneficiary has not quoted their TFN by the end of the year. (The beneficiary must be a resident and not under a legal disability and the trustee must not be liable to be assessed under S.98).
Note: if the present entitlement existing at year end related to a distribution made earlier in the year, S.12-180 has no application. Refer to S12-180(4) and S.95A (1) of the ITAA 1936.
Relevant labels to complete on the trust tax return
Label T is only relevant if a trustee actually has to withhold an amount. For example, a beneficiary who has not quoted their TFN is made presently entitled to $10,000 of trust income and their share of the net (taxable) income is also $10,000. Pursuant to Regulation 38D of the Taxation Administration Regulations, the trustee must withhold $4,650 (i.e., 46.5% x $10,000) and this is the amount reported at Label T.
Label S on its own does not constitute the ATPR. In most cases, the ATPR will have been completed based on the information reported at the other labels in the Statement of distribution. The ATO publication ‘TFN withholding for closely held trusts’ (‘publication’) states the ATPR is only trying to capture actual payments made to, or behalf of, a beneficiary.