The Government has issued an exposure draft which will amend the provisions of the income tax law to require the trustee of closely held trusts to withhold income tax at the highest marginal tax rate where the beneficiary has not disclosed its tax file number.
A closely held trust includes discretionary trusts which is the usual type of family trust. A closely held trust is also a trust which has up to 20 beneficiaries who have fixed entitlements to a 75% or greater share of the income, or a 75% or greater share of the capital, of the trust.
Once this legislation is passed care will need to be taken by trustees of family trusts to ensure they report to the Commissioner the tax file number of all beneficiaries who are presently entitled to the income of the trust in an income year in the approved form or otherwise they must withhold tax from the distributions of an amount equal to the highest marginal tax rate on those distributions and remit the same to the Australian Taxation Office. It is proposed that this legislation will operate from and including the 2010/11 income year of the trust.