The trustee is responsible for managing the trust’s tax affairs, including registering the trust in the tax system, lodging trust tax returns and paying some tax liabilities.
The beneficiaries include their share of the trust’s net income in their tax returns and may need to pay instalments on their expected tax liability through the pay as you go (PAYG) instalment system.
Special rules apply to closely held trusts or where a beneficiary is a non-resident.
If a trust is carrying on a business, the trustee may have employer obligations.
A trust should have its own tax file number (TFN), which the trustee uses in lodging income tax returns for the trust. A trust is also entitled to an Australian business number (ABN) if the trust is carrying on an enterprise.
The trustee registers for the trust’s TFN and ABN in their capacity as trustee. This registration is separate from any registration the trustee may require for other capacities they may act in, including acting on their own behalf.
All trusts will automatically have ‘The Trustee for…’ added to the name of the trust when the ABN is registered, as the trustee is responsible for the tax obligations of the trust.
Trusts are not liable to pay PAYG instalments. Instead, the beneficiaries (or the trustee when assessed on their behalf) may have to pay instalments based on their share of the trust’s instalment income.
Non-resident withholding tax
If a non-resident beneficiary is presently entitled to dividends, interest or royalties included in the trust income, the trustee must withhold tax and remit it to the ATO. The trustee may need to lodge a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report.
A trustee is required to lodge a trust income tax return, regardless of the amount of net income involved, unless we advise that a return is not required.
If the trustee is liable for tax they will receive an income tax assessment as trustee that is separate to their own assessment as an individual or corporate tax entity.
- Trust tax return instructions
- PS LA 2000/2 An exemption for the trustees of some trust estates from the requirement to furnish a tax return on behalf of the trust estate
- Streamlined trust tax return for custodians with non-resident beneficiaries
Beneficiaries generally include their share of the trust’s net income in the partnership/trust distributions section of their tax return.
Closely held trusts – withholding and reporting
The following additional requirements apply to trustees of closely held trusts.
Tax file number (TFN) withholding
The trustee of a closely held trust, including a family trust, must withhold tax from payments to beneficiaries who have not provided their TFN to the trust.
The trustee of a closely held trust (other than a family trust) with one or more trustee beneficiaries who are presently entitled to a share of the income or a tax-preferred amount (or both) of the trust must provide us with certain details of the trustee beneficiaries.
Trustee beneficiary non-disclosure tax
This tax is payable if:
- the trustee of a closely held trust (other than a family trust) fails to lodge a correct trustee beneficiary (TB) statement within the specified period in respect of each trustee beneficiary’s share of net income, or
- a share of the net income of a closely held trust (including a family trust) is included in the assessable income of a trustee beneficiary under section 97 of the Income Tax Assessment Act 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 trust distribution’).
If the trustee of a closely held trust is liable for trustee beneficiary non-disclosure tax, the trustee beneficiary’s share of net income is not included in their assessable income under section 97 (except where the share of net income is assessable under sections 99, 99A and 99B).
If a trust employs people, the trustee will have employer obligations, including pay as you go (PAYG) withholding, paying super contributions for any eligible employees and reporting and paying tax on fringe benefits.
Australian Taxation Office