Closely held trusts: A special case
Additional withholding and reporting requirements apply for closely held trusts. A closely held trust is a trust where 20 or fewer individuals have between them – and benefit from – fixed entitlements to 75% or more of the income or capital of the trust. For tax purposes, a discretionary trust is a closely held trust.
The trustee of a closely held trust must withhold tax from payments to beneficiaries who have not provided their TFN to the trust. In addition, details of beneficiaries who are entitled to a share of the income or a tax-preferred amount (or both) must be provided to the ATO.
Furthermore, a trustee beneficiary non-disclosure tax may be payable in either of the following circumstances:
- The trustee of a closely held trust does not lodge a correct trustee beneficiary (TB) statement with the ATO within the specified period.
- A share of the net income of a closely held trust is included in the assessable income of a trustee beneficiary, and the trustee of the closely held trust becomes presently entitled to an amount that can be reasonably attributed to a part of, or the whole, untaxed part of the share.
If you’re thinking about establishing a trust, you should first seek legal and financial advice to determine the most suitable type of trust, confirm beneficiaries and set out criteria needed for the trust deed. It’s also advised you speak to professional tax advisor to understand your tax obligations.
Learn more about tax for the self-employed or if you’re running a small business here.