The Law Handbook 2024

398 Section 5: Managing your money Trustees of closely held trusts must lodge a ‘TFN report’ by the end of the month following the quarter in which any new TFNs are notified to the trustees. For year-end distributions, TFN reports must be lodged by 31 July. Failure to report this information to the Tax Commissioner is an offence and may result in a fine of up to $1050 for a small entity; the penalty can be multiplied by up to 500, depending on the size of the entity and the overdue period. If a beneficiary has not notified the trustee of their TFN either verbally or in writing before a ‘payment’ is made to them, including both a distribution of income of the trust or present entitlement, the trustee must withhold tax on that payment at the top marginal tax rate plus the Medicare levy and temporary budget levy (if applicable). The trustee will need to apply for PAYG withholding, and lodge an ‘Annual TFN withholding report’ by 30 September. Withheld amounts must be paid to the ATO by 28 October. The beneficiary can then claim a credit in their income tax return for any amounts withheld. Working holiday makers Some people who come to Australia as working holiday makers (i.e. holders of subclass visa 417 or 462) are considered to be foreign residents for tax purposes. Working holiday makers are generally ineligible to claim the tax-free threshold and, therefore, the first $45 000 of income they earn in Australia is subject to a 15 per cent tax (this is often referred to as the ‘backpacker tax’). However, working holiday makers may not need to pay the backpacker tax if, in the 2021–2022 financial year, they were Australian residents for tax purposes, and they are from a non-discrimination article country (i.e. Chile, Finland, Germany, Israel, Japan, Norway, Turkey, the United Kingdom). That is, they can claim the tax-free threshold. For further information about whether an individual is an Australian resident for tax purposes, see the ATO’s website (www.ato.gov.au/Individuals/Coming- to-Australia-or-going-overseas/Coming-to-Australia/ Working-holiday-makers/) . Tax returns Do you have to file a tax return? Generally, if your taxable income exceeds the minimum tax-free threshold, you must lodge a tax return. If you are an Australian resident (but not a primary producer or, in some cases, under 18 years old) the tax-free threshold is $18200 (for the income year ending 30 June 2022). The availability of various rebates means that, even if you earn more than the threshold, you may not have to pay tax, although you do have to lodge a tax return. If you are an Australian resident aged under 18 at the end of the tax year (30 June) and received income in a form other than salary or wages (e.g. dividends, interest, rent, royalties), you do not have to lodge a tax return if your income was $416 or less in the 2022–2023 income year. (Note that different rules apply to minors who received income as a result of an inheritance and in certain other circumstances.) If you are not a resident of Australia for tax purposes, you need to lodge returns if you derive income that is taxable in Australia, other than income from which withholding tax has been deducted. In some cases, you may need to lodge a tax return even where you have not reached a tax-free threshold. For example, you may work for only a short time but have had taxation instalments withheld from your pay. Even though you have earned less than the tax- free threshold, you will have to complete a tax return in order to receive a refund of the tax that has been withheld. Resident companies (except not-for-profit companies), partnerships, trusts and superannuation funds are required to file returns regardless of income. Not-for-profit companies (which include most clubs and associations) have to file a return if their taxable income exceeds $416. For more information about who is required to submit tax returns, see the Individual Tax Return Instructions 2023 and the ATO’s website. Low-income tax offset A low-income tax offset ( LITO ) of up to $700 applies to taxable incomes below $66 667. The LITO amount is reduced by 5 per cent of the amount by which an individual ’ s taxable income exceeds $37 500 (up to a taxable income of $45 000) and a further 1.5 per cent of the amount an individual ’ s income exceeds $45 000. The LITO no longer applies to reduce the tax payable by minors (i.e. persons under 18 years as at 30 June) on unearned income (e.g. dividends, interest, rent and royalties).