Trust Tax Rates

This is information about trust-related tax rates and to whom they might apply. A trust is a legal arrangement which acts through a trustee, and is treated as an entity for taxation purposes. They are popular for tax and estate planning purposes – see further information at the foot of this page.

The tax position of a trustee and/or beneficiary depends on a number of factors which require an assessment of facts and circumstances. Information here is presented as a summary and cannot be relied on as the basis of any course of action.

The issues involved in determining the tax rates of tax applicable to a trust ( trustee) or beneficiaries are complex and professional advice is recommended.

Resident Trust Estate

A trust is tax-resident of Australia if at any time during the income year

  • a trustee was resident, or
  • the central management and control was in Australia

Trusts are required to calculate their net income as if they are resident.

For tax purposes it matters whether a trust is resident or not because:

  • Sec 99 and 99A assessments (when no beneficiary is presently entitled) are limited to the Australian-source income of non-resident trusts
  • The transferor trust rules apply an accruals basis of taxation on the income of non-resident trusts in low-tax jurisdictions (Div 6AAA)

Tax rate changes 1 July 2014 and 1 July 2017

Federal Budget 2014-15 measures increased the top marginal tax rate (before Medicare) by 2% to 47% for a period of 3 years commencing 1 July 2014.  The rate incorporating a Medicare factor (i.e. previously already 47%) moves to 49%. The Medicare levy is not included if the trust is assessed under Section 99A as a deceased estate.

From 1 July 2017 the 2% surcharge ceases, with the medicare-inclusive top marginal rate reverting to 47%.

Adult trust beneficiaries – no legal disability  (Sec 97)

A beneficiary of a trust who is

  • aged 18 at the end of the year of income
  • presently entitled to a share of the net income, and
  • not under a legal disability

– pays tax on the share of trust income at normal individual rates – resident or non-resident – with part-year tax free threshold apportionment where applicable (sec 97).

Note: Division 6D overrides this to the extent that penalty tax is payable by the Trustee if trust beneficiary reports are not provided on time, or in relation to untaxed ’round robin’ trust income.  See further: Trustee beneficiary reporting rules

Trustee assessments (Sec 98)

The general position is that adult beneficiaries under a legal disability are trustee-assessed at normal individual rates.

Sec 98 sets out a number of bases on which a tax assessment can be issued to the trustee instead of the beneficiary.

Tax paid by the trustee is normally available as a credit in the tax assessment of the beneficiary. 

Operative parts of Sec 98
The beneficiary:Sec 98(1)Sec 98(2)Sec 98(2A)Sec 98(3)Sec 98(4)
Resident tax scale applies (1)YesYes
Non-resident tax (non-Aus income) (2)YesYes
Under legal disability (3)YesNo
Has present entitlement (4)YesYes
Deemed present entitlement Sec 95A(2)Yes
Is a natural person and not a trusteeYes
Is a trusteeNoYes
Sec 97A applies (FMDs)NoNo
Sec 97(3) applies - non-res exempt bodiesNoNo
Non resident at end of year of incomeYes
Sections 98(1) and 98(2) do not applyYes
If 98(2A) applies then 98(3) appliessee 98(3)
98(3) - Not company - individual tax scaleYes<=
98(3) - Is a company - company tax rateYes coy tax rate<=
A trustee (of the beneficiary trust) is non resident at year endYes
Tax rate45%-47%-45% *

* the medicare-exclusive tax rate includes a Temporary Budget Repair Levy of 2% in the 3 years from 1 July 2014 until 30 June 2017. From 1 July 2017 the rate reverts to 45%.

See Sec 98 and also Taxation of trust net income for non-resident beneficiaries

(1) The general individual resident tax scales are here, however see also – Tax on minors (5)

(2) The general individual non-resident tax scales are here, however see also Tax on minors (5)

(3) A legal disability may be due to:

  • mental incapacity
  • bankruptcy
  • being a minor – aged under 18 on the last day of the income year

(4) For notes on the meaning of present entitlement see here.

(5) Children – the tax on minors

The minor beneficiaries’ tax rules are designed to reduce the benefits which would otherwise be available by accessing lower average tax rates from the splitting of unearned income to under-age beneficiaries.

Beneficiaries under 18 receiving unearned income are subjected to a reduced tax threshold, removal of LITO and the application of higher marginal tax rates on that income. There are exceptions in relation to deceased estates, orphans, disabled minors and compensation payments.

A beneficiary is a ‘minor’ if under 18 years old at the end of the year of income. Being under age is a legal disability, and therefore tax is normally assessed to the Trustee. Where the beneficiary lodges a tax return the tax paid by the trustee is applied as a credit.

Income from personal exertion (such as wages) or income earned from the minor’s own savings are excluded from the child income higher tax scale, and taxed at ordinary rates, as is the income from deceased estates, child support (maintenance) trusts and trusts formed from the proceeds of compensation and superannuation.

See further for the tax rates applicable to children’s income:

Trust Tax Return Trust Assessment Codes

The trust tax return assessment calculation codes provide specific information to the Tax Office as to how trust income is to be treated for tax purposes and by implication, to whom assessments (if any) should be served.

The codes are determined by the nature of the trust income and the tax status (both entity type and legal capacity) of each beneficiary, or if no beneficiary, the trustee.

It is crucial that the correct code be nominated to avoid incorrect assessments or assessment delays. To accurately determine the correct codes, the legal meaning of terms used must be understood – for which professional expertise is a prerequisite.

A full list of relevant codes is published as part of the Trust Tax Return instructions – see Appendix 12: Trust assessment codes.

An assessment code is required to be entered into Item 55 of the distribution statement for each beneficiary, or if no beneficiary is presently entitled, and (if applicable) also at item 56 of the income tax return.

The total distributions must of course reconcile to trust income.

Further information can be found in the Trust Tax Return Instructions.

Closely-held trusts – beneficiary disclosure

Closely-held trusts are required to disclose their beneficiaries annually, failing which a penalty rate of tax applies at a rate matching the top marginal rate inclusive of medicare levy (see notes below).

Definition: Unless it is an excluded trust, a trust is a ‘closely held trust’ if:

  • up to 20 individuals have between them, directly or indirectly, and for their own benefit, fixed entitlements to a 75% or more share of the income or a 75% or more share of the capital of the trust (‘the 20/75 test’), or
  • it is a discretionary trust.

See a summary checklist of exclusions here.

Definition: A discretionary trust means a trust that is not a fixed trust within the meaning of section 272-65 in Schedule 2F.

sec272-65

See: Practical Compliance Guidelines PCG 2016/16 Fixed entitlements and fixed trusts

Definition: An ‘excluded’ trust is defined in Sec 102UC(4)  – summarised here – includes  ‘family trusts’ (i.e. with a family trust election in force).  – See family trust and interposed entity elections.

Tax rates

Trustee beneficiary non-disclosure tax matches the top marginal tax rate inclusive of medicare levy applied to the untaxed net income which is reasonably attributable, or for which a Trustee Beneficiary Statement has not been lodged by the due date.

The rate applied in the period from 1 July 2014 until 30 June 2017 is the top marginal rate of 45% plus medicare 2% plus the Temporary Budget Repair Levy of 2% = 49%.

On cessation of the Temporary Budget Repair Levy  (i.e. from 1 July 2017) the medicare-inclusive rate reverts to 47%.

Trustee beneficiary statements are generally due by the due date for the trust’s tax return for the income year, and are included as an appendix to the annual trust tax return instructions.

See further:

TFN reports and withholding requirements for closely held trusts

Trustees receiving a Tax File Number quoted by a beneficiary under these rules is required to lodge a TFN report within 1 month of the end of the quarter.

This requirement applies to closely held trusts  – excluding non-resident trusts,  and excluding beneficiaries under a legal disability (minors for example),  exempt beneficiaries and super fund beneficiaries – see more here.

If a TFN is not provided by a beneficiary prior to a payment, the Trustee is required to

  • withhold tax from any payment to the beneficiary
  • register with the ATO for PAYG and remit the tax withholdings
  • (as under normal PAYG requirements) provide an annual payment summary to the beneficiary

An annual summary of the payments information also forms part of the the trust’s tax return requirements.

Tax deducted by the trustee is available as a credit/refund in the beneficiary’s annual tax return.

Deceased estates

Deceased estates are a ‘special case’ – concessionally taxed for the first 3 tax returns. Tax is paid on income to which no beneficiary is presently entitled at individual rates with the benefit of the full tax-free threshold, without medicare levy. (See resident rates)

In the 4th and subsequent tax years a progressive tax scale applies: (Sec 99)

Minors – income distributions to minors from deceased estates are treated as “excepted income” and taxed at ordinary rates – see Excepted Income.

Trust income2017-18 Trustee tax payable (resident)
Up to $416Nil
From $417 to $67050% of the excess over $416
From $671 to $37,000$127.30 plus 19% of the excess over $670
From $37,001 to $87,000$7,030 plus 32.5% of the excess over $37,000
From $87,001 to $180,000$23,280 plus 37% of the excess over $87,000
Over $180,000$57,690 plus 45% of the excess over $180,000

 

Trust income2016-17 Trustee tax payable (resident)
Up to $416Nil
From $417 to $67050% of the excess over $416
From $671 to $37,000$127.30 plus 19% of the excess over $670
From $37,001 to $87,000$7,030 plus 32.5% of the excess over $37,000
From $87,001 to $180,000$23,280 plus 37% of the excess over $87,000
Over $180,000$57,690 plus 47%* of the excess over $180,000

* includes Temporary Budget Repair Levy of 2% applicable for 3 years from 1 July 2014 until 30 June 2017

 

Trust income2014-15 and 2015-16 Trustee tax payable (resident)
Up to $416Nil
From $417 to $67050% of the excess over $416
From $671 to $37,000$127.30 plus 19% of the excess over $670
From $37,001 to $80,000$7,030 plus 32.5% of the excess over $37,000
From $80,001 to $180,000$21,005 plus 37% of the excess over $80,000
Over $180,000$58,005 plus 47%* of the excess over $180,000

* includes Temporary Budget Repair Levy of 2% applicable for 3 years from 1 July 2014 until 30 June 2017

Income to which no beneficiary is presently entitled (Sec 99A)

By default the trustee is assessable for tax on trust income for which there is no beneficiary presently entitled at the top marginal rate 45% (47% from 1 July 2014 to 30 June 2017 and 47.5% from 1 July 2019) unless the Commissioner exercises a discretion to apply a concessional tax scale (below) in relation to property of:

  • deceased estates
  • bankrupt estates
  • certain compensation claims and death benefits
  • or as a result of a family breakdown.

For further details on the operation of the Commissioner’s discretion in relation to a deceased estate see here.

The concessional tax scale applied on the exercise of discretion under Sec 99A is as follows:

Trust income
(no present entitlement)
2017-18 Trustee tax payable (resident)
Up to $416Nil
From $417 to $67050% of the excess over $416
From $671 to $37,000$127.30 plus 19% of the excess over $670
From $37,001 to $87,000$7,030 plus 32.5% of the excess over $37,000
From $87,001 to $180,000$23,280 plus 37% of the excess over $87,000
Over $180,000$57,690 plus 45% of the excess over $180,000

 

Trust income
(no present entitlement)
2016-17 Trustee tax payable (resident)
Up to $416Nil
From $417 to $67050% of the excess over $416
From $671 to $37,000$127.30 plus 19% of the excess over $670
From $37,001 to $87,000$7,030 plus 32.5% of the excess over $37,000
From $87,001 to $180,000$23,280 plus 37% of the excess over $87,000
Over $180,000$57,690 plus 47%* of the excess over $180,000

* includes Temporary Budget Repair Levy of 2% applicable for 3 years from 1 July 2014 until 30 June 2017

 

Trust income
(no present entitlement)
2014-15 and 2015-16 Trustee tax payable (resident)
Up to $416Nil
From $417 to $67050% of the excess over $416
From $671 to $37,000$127.30 plus 19% of the excess over $670
From $37,001 to $80,000$7,030 plus 32.5% of the excess over $37,000
From $80,001 to $180,000$21,005 plus 37% of the excess over $80,000
Over $180,000$58,005 plus 47%* of the excess over $180,000

* includes Temporary Budget Repair Levy of 2% applicable for 3 years from 1 July 2014 until 30 June 2017

 

See also

Further information and checklists

 

 

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This page was last modified 2019-01-09