Trust TFN Withholding Annual Reporting — Now Law

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

If a trust distributes income to a beneficiary who has not provided their Tax File Number, the trustee is required to withhold tax at the top rate and report that withholding to the ATO. This obligation is not new. What has changed is how trustees report beneficiaries who have quoted a TFN: the quarterly TFN report is gone, replaced from 1 July 2026 with reporting in the trust’s annual tax return.

Why TFN withholding exists

When a trustee makes a distribution to a beneficiary, the ATO needs to match that income to the beneficiary’s own tax return. The TFN is the mechanism that makes that matching possible.

If a beneficiary has not quoted their TFN to the trustee, the ATO cannot identify them. To prevent tax leakage, the trustee is required to withhold tax at 47% (the top marginal rate plus Medicare levy) from the beneficiary’s share of trust income and remit that amount to the ATO.

The beneficiary is not permanently overtaxed. They can claim the withheld amount as a credit when they lodge their own tax return, reducing their liability to their actual marginal rate. However, if a beneficiary is not lodging a return — or is genuinely unknown to the trustee — the withheld amount may never be reclaimed.

When TFN withholding applies

TFN withholding is required when:

1. A beneficiary is presently entitled to trust income (the trustee has made a distribution), and
2. The beneficiary has not quoted their TFN to the trustee before the trust’s income is reported

The obligation applies to closely held trusts — broadly, trusts where 20 or fewer individuals hold at least 75% of the beneficial interests. Family discretionary trusts and closely held unit trusts are the most common structures in scope.

How to report withheld amounts

Under the existing framework, trustees report TFN withholding information on the trust’s income tax return (the Annual TFN Withholding Report). The return identifies:

• the trust’s ABN and TFN
• each beneficiary for whom tax was withheld
• the amount of income distributed to each beneficiary
• the amount of tax withheld

The withheld tax is paid to the ATO and credited against the beneficiary’s tax account when they lodge their return. If the beneficiary does not lodge, the ATO holds the credit until a return is filed or the credit is otherwise resolved.

The 2026 changes: now law

This is now law. The change was announced as part of the 2024–25 Mid-Year Economic and Fiscal Outlook (18 December 2024) and legislated in the Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Act 2026 (Act No. 58 of 2026, assented 30 June 2026). The ATO’s own “new legislation in detail” page, published 24 July 2026, confirms: “This is now law.”

What actually changed is narrower than a full re-platforming of TFN reporting — it is specifically about how trustees report beneficiaries who have quoted a TFN:

Quarterly TFN report abolished Trustees of closely held trusts were previously required to lodge a quarterly TFN report identifying beneficiaries who had quoted their TFN. That quarterly report ends after the April–June 2026 quarter — the final one is due by 31 July 2026. From 1 July 2026, trustees no longer send a quarterly TFN report at all.

Beneficiary TFNs now reported on the trust tax return Trustees must now report beneficiary TFNs in the statement of distribution when completing the annual Trust tax return, for any beneficiary presently entitled to trust income. Additional labels will appear on the Trust tax return from the 2027 return to support cases where a beneficiary has not quoted their TFN.

No change to TFN withholding The 47% no-TFN withholding obligation (see above) is unaffected — the ATO is explicit that “there’s no change to existing TFN withholding and reporting obligations of trustees where a beneficiary has not quoted their TFN before the payment of any distributions.”

Software and lodgment changes The ATO’s Modernisation of Tax Administration Systems (MTAS) program rolled out the supporting system changes in Phase 2, including new PLS (Practice Lodgment Service) interaction messages from 23 February 2026.

What trustees and advisers should do now

1. Collect TFNs from all beneficiaries — before distributions are made

This is the most effective preventive step. A beneficiary who has quoted their TFN triggers no withholding obligation. Collect TFNs at trust establishment and update records whenever a new beneficiary is added or an existing one’s details change.

For discretionary trusts where the pool of potential beneficiaries is broad, focus on those who are likely to receive actual distributions. At minimum, collect TFNs from all beneficiaries named in resolutions before distribution statements are issued.

2. Review your withholding processes

Map out the current workflow: who is responsible for collecting TFNs, who checks them before the resolution is finalised, and who prepares the withholding report. Identify any gaps where a beneficiary could slip through without a quoted TFN.

3. Confirm your software captures beneficiary TFNs in the statement of distribution

If you use tax agent software for trust returns, check with your provider that it now captures and reports beneficiary TFNs in the statement of distribution, and watch for the additional labels arriving on the Trust tax return from the 2027 return. The MTAS Phase 2 PLS messages introduced in February 2026 support this change.

4. Review prior year reporting for accuracy

If any prior year distributions were made to beneficiaries without TFNs, and withholding was not applied, this may be an unresolved compliance issue. Seek advice on whether voluntary disclosure or correction is appropriate.

5. Stop lodging the quarterly TFN report after the April–June 2026 quarter

The final quarterly TFN report is due by 31 July 2026, covering the April–June 2026 quarter. There is no quarterly TFN report to lodge after that — the obligation is replaced entirely by statement-of-distribution reporting on the annual trust return.

Practical example: TFN not collected before distribution

A family discretionary trust has three beneficiaries: two adult children and a company. The trustee resolves to distribute $80,000 to the eldest child for the 2025-26 income year.

The eldest child has not quoted their TFN to the trustee.

The trustee is required to withhold tax at 47% on the $80,000 distribution: $37,600 withheld, with only $42,400 available to the beneficiary.

Assuming the $80,000 distribution is the beneficiary’s only taxable income for 2025-26, their actual tax liability is income tax of $14,788 (4,288 + 30% of the $35,000 over $45,000) plus the 2% Medicare levy of $1,600, totalling approximately $16,388 — an effective rate of about 20.5%. The $37,600 withheld creates a refund of roughly $21,200 — but only after lodgment. The cash has been held by the ATO in the interim.

If the TFN had been provided upfront, no withholding would apply and no timing mismatch would occur.

Key facts summary

Sources

• ATO: Changes to beneficiary TFN reporting for closely held trusts (published 24 July 2026) — “This is now law.” / “From 1 July 2026, trustees of closely held trusts are no longer a required to send a quarterly TFN report.” / “The final TFN report for the April–June 2026 period is due by 31 July 2026.” / “There’s no change to existing TFN withholding and reporting obligations.”
• Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026 — APH bill home page — passed both Houses 29 June 2026; Act No. 58, 2026; Assent 30 June 2026.
• 2024–25 Mid-Year Economic and Fiscal Outlook (18 December 2024) — original announcement of the measure.
• ATO software developers update (23 February 2026): MTAS Phase 2 and trust TFN withholding annual reporting
• ATO: TFN withholding for closely held trusts