Just in case you thought our tax system is not complex enough, the government introduced new legislation that took effect for tax years beginning the 1st July, 2010. This means we are all dealing with these changes now when lodging 2011 trust tax returns.
Closely held trusts include most family trusts and therefore even your mum and dad investment trust need to report to the ATO via a TFN Report personal details of beneficiaries & TFN details.
If TFN details are not provided by beneficiaries the trustee of the trust must withhold tax on trust distributions to beneficiaries.
This might sound strange and it is. Mum and Dad as beneficiaries of the trust must provide themselves as trustees their TFN details then report these to the ATO so that they don’t have to withhold tax from trust distributions they pay themselves from the trust.
What this achieves I have no idea but does make the cost of compliance higher and more complex.
I’m sure the original propose as detailed in the explanatory memorandum was to assist the ATO to data match & ensure no leakage of tax, however the only practical outcome is to increase the complexity of the tax system, increase compliance costs and enshrine the notion that other that use family trusts are tax dodgers