[Insert DD Month YYYY]
[Insert Client Name]
[Insert Client Position]
[Insert Company Name]
[Insert Company Address]
[Suburb State Post Code]
Dear [Insert Client Name]
Re: Withholding regime for closely held trusts
Trustees of closely-held trusts are required to withhold amounts from trust distributions where beneficiaries have not provided their TFN to the trustee. Where withholding is required, trustees must withhold at the top marginal tax rate plus Medicare levy.
Importantly, the withholding regime does not apply in relation to present entitlements and distributions made in the following circumstances:
 to beneficiaries that are tax exempt
 to beneficiaries whose tax liability is ordinarily assessed to the trustee e.g. minors and foreign residents
 where the distributions have already given rise to Family Trust Distributions Tax.
The withholding regime operates under the PAYG system. This means that an affected trustee needs to register for PAYG withholding.
What trustees are impacted?
The withholding regime applies to trustees of closely held trusts, including family trusts. Closely held trusts are discretionary trusts and any fixed trusts where up to 20 individuals have fixed entitlements
(either directly or indirectly) to a 75 per cent or greater share of the income or capital of the trust.
While the definition of closely held trusts ordinarily excludes family trusts the withholdings regime will extend to family trusts (i.e. even where a family trust election is in place).
The following trusts are excluded from the definition of a ‘closely held trust’ and do not need to withhold tax under these measures:
 complying superannuation funds

 complying approved deposit funds pooled development funds
 deceased estates
 fixed trusts that are unit trusts where exempt entities have fixed entitlements to all the income and capital of the trust
 a law practice trust, which is a trust regulated by state or territory law for the regulation of legal practices
 non-resident trusts.
Implications for trustees
Affected trustees are required to report and remit amounts withheld under the TFN withholding regime to the Australian Taxation Office (ATO) on an annual basis. Trustees are also required to report (at the time of lodging the trust income tax return).

Amounts to be withheld
The withholding obligation arises when the trustee of the trust makes a distribution of an amount that includes ordinary or statutory income to an eligible beneficiary, or when an eligible beneficiary becomes presently entitled to a share of income of the trust and the beneficiary has failed to quote their TFN.
The amounts to be withheld are:
 where amounts have been distributed during the year – the withholding rate x full amount of the trust income distributed to the eligible beneficiary (i.e. not necessarily the share of the net income)
 where the beneficiary becomes entitled to a share of the trust income at the end of the year – the withholding rate x share of the net taxable income for the year. This amount is adjusted for amounts withheld during the year.
If a trustee fails to withhold and remit the amounts required, the trustee will be subject to administrative penalties. In addition, trustees are required to report to the Commissioner any new
TFNs quoted by their beneficiaries on a quarterly basis.
Implications for beneficiaries
A beneficiary of a closely-held trust can decide whether to provide their TFN to the trustee.
Beneficiaries who do not provide their TFN and have had amounts withheld under the withholding regime will be entitled to a credit for those amounts of PAYG tax withheld in their income tax return.
Reporting Requirements for Trustees
Where a beneficiary provides their TFN to a trustee, the trustee will be required to lodge a TFN
Report to the ATO in that quarter. The report is due by the last day of the month following the end of the quarter.
The trustee is only required to notify the ATO once of the beneficiary’s TFN. Accordingly, a TFN
Report will only be required to report new TFNs provided to the trustee. This means that a trustee that has already disclosed all known beneficiary TFNs to the ATO will only ever need to lodge a further report if new beneficiaries are added or existing beneficiaries are provided with a TFN.
At the end of each income year, a trustee is required to lodge an Annual trustee payment report . The report must include the total payments made to each beneficiary even where all beneficiaries have reported their TFNs and there is no withholding required. This report is lodged by completing information on the trust income tax return for the year.
Failure to lodge any of these reports on time may attract administrative penalties.
To arrange a meeting to discuss any of the above changes or any other tax planning issues, please do not hesitate to contact me on [insert telephone number of partner].
Yours faithfully
[Insert name of Partner]