Dear Director,
On behalf of The Tax Institute, thank you for the opportunity to provide feedback to the Treasury consultation on Modernising tax administration systems.
Please accept our apologies for the delay and find below the feedback received from our members regarding the Treasury Laws Amendment Bill 2025: Modernising trust administration systems (draft Bill) and the explanatory materials (draft EM).
- Paragraph 1.8 of the draft EM states that the Statement of Distribution did not include a beneficiary’s Tax File Number (TFN), even where it had been quoted to the trustee, and that the TFN was instead reported separately to the ATO via a TFN Report. Our members consider that this description is materially inaccurate or at least incomplete. The Statement of Distribution in the trust income tax return includes a specific field for reporting a beneficiary’s TFN. Trustees are required to lodge a TFN Report for the relevant quarter only where a beneficiary quotes their TFN to the trustee for the first time, or where the beneficiary’s TFN details change, and the TFN is not otherwise included in the Statement of Distribution in the trust tax return. While our members understand that the draft Bill proposes to replace the existing quarterly TFN reporting obligation, it is unclear why the beneficiary’s TFN must instead be reported in an ‘approved form’ when the TFN is provided by the beneficiary to the trustee before the trustee lodges the trust’s return of income for the year, in circumstances where it can be reported directly in the trust tax return. The draft amendments appear to contemplate that the approved form can only be used where a beneficiary has quoted their TFN at any time before the trustee lodges the trust’s tax return. Further, the proposed amendments allow trustees to report a beneficiary’s TFN by the earlier of the due date for lodgment and the actual lodgment date of the trust tax return, or by another date approved by the Commissioner. Members have indicated that this is likely to create uncertainty in practice. It is unclear how these rules would operate where a beneficiary provides their TFN after the trust return has been lodged. In particular, our members question whether this would preclude the beneficiary from quoting their TFN after lodgment of a tax return and, as a consequence, whether future distributions or payments would be made subject to 47% withholding. Additional clarification in the draft EM and/or legislative provisions would assist trustees to understand how these reporting requirements are intended to operate in practice.
- Paragraph 1.11 of the draft EM states that no changes are proposed to the TFN withholding rules. While we acknowledge that it may be outside the scope of this particular measure, our members consider that a limited change may be warranted to address common practical issues experienced by trustees. Our members have encountered situations, particularly close to the end of the income year, where a trustee intends to make a distribution to a beneficiary who has not yet obtained a TFN but is in the process of applying for one. In some cases, the process of obtaining a TFN can take several weeks, meaning the beneficiary may not be able to quote their TFN prior to 30 June. Under the current law, this scenario appears to give rise to TFN withholding under section 12‑180 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA 1953), which operates based on present entitlement. Section 12‑175(4) of the TAA 1953 appears to switch off a secondary withholding obligation when the actual distribution (for example, a payment) is made, even if no TFN has been obtained. However, this does not address the primary withholding requirement that arises upon the creation of the present entitlement where no TFN has yet been quoted. Our members suggest that, in light of the proposed new reporting framework, a sensible and practical amendment would be to introduce an exception to TFN withholding at the point a present entitlement is created where the beneficiary quotes their TFN to the trustee before the earlier of:
- the payment of the amount to the beneficiary; and
- the lodgment of the trust’s income tax return for the relevant income year.
Such an amendment would allow beneficiaries a reasonable opportunity to obtain and quote a TFN shortly after year‑end, while still ensuring that TFNs are provided before payment is made or the trust’s return is lodged. This approach would reduce unnecessary withholding, better reflect commercial and administrative reality, and align appropriately with the proposed modernised reporting rules.