The assistant Treasurer has released a discussion paper on moves to extend the tax file number (TFN) withholding arrangements to closely held trusts, including family trusts (i.e., trusts that have made a family trust election), where beneficiaries fail to provide their TFN to the trustee.

The measure applies from 1 July 2010. The consultation paper has a number of examples.

Example: Treatment of trustee beneficiary of a family trust
At the end of an income year, the trustee of the Evans Family Trust is presently entitled to a share of the income of the Bell Family Trust and is required to include $10,000 in its assessable income.

The Trustee of the Evans Family Trust has not quoted its TFN to the trustee of the Bell Family Trust. Both trusts are in the same family group so ‘family trust distribution tax’ is not applicable.

Interim distributions of income have not been made during the income year.

Therefore, the trustees of the Bell Family Trust must withhold $4,650 from the amount that the Evans Family Trust is required (under s.97 of the ITAA 1936) to include in its assessable income.

However, where the beneficiaries of the Evans Family Trust are presently entitled to the income of that trust, they must include their shares of the net income in their assessable income and are entitled to a credit for their share of the amount withheld by the Bell Family Trust.

Copies of the discussion paper can be obtained from www.treasury.gov.au

Ref: Assistant Treasurer’s press release No.079, NTAA the Tax Advisor’s Voice edition No.188.