Tax File Numbers

Companies are obliged to deduct a resident withholding tax from unfranked dividends, interest and distributions made to investors who have not quoted a TFN or an exemption.

Investments Subject to the TFN Arrangements

The following investments are subject to TFN/ABN arrangements:

  • An interest-bearing account with a bank, building society or credit union;
  • An interest -bearing deposit (other than a deposit to the credit of an account) with a bank, building society or credit union.
  • A loan of money to a government body or to a body corporate (other than a deposit to the credit of an account referred to in 1, a deposit to which 2, applies, or a loan made in the ordinary course of the business of providing business or consumer finance by a person who carries on that business);
  • A deposit of money with a solicitor for the purpose of: (a) being invested by a solicitor; or (b) being lent under agreement to be arranged by or on behalf of the solicitor;
  • Units in a unit trust;
  • Shares in a public company; and
  • An investment related betting chance.

It should be noted that the investor is not obligated to quote a TFN or an ABN or claim an exemption from quoting a TFN. The investor may exercise his/her right not to quote a TFN or claim an exemption. This choice may, however, result in amounts being deducted from their investment income at the highest marginal tax rate plus the Medicare levy.

There is however one exception to this, which is in the event of a claim for refund of an incorrect deduction of withholding tax from a dividend or interest payment being made and the investment body does not have a record of a valid TFN or ABN.

This is the only time that a TFN or an ABN can be requested and must be supplied by the investor.

Refer to: FORM 26 "TAX FILE NUMBER (TFN), AUSTRALIAN BUSINESS NUMBER (ABN) OR EXEMPTION NOTIFICATION

Receipt and Recording of TFNs and ABN's

Investors may quote their TFN or ABN to their investment body or claim an exemption from quoting in respect of investments held.

Quoting a TFN or ABN or claiming an exemption can be effected by an investor completing a TFN/ABN Notification/Exemption form.

Where an investor writes a letter to an investment body quoting a TFN or ABN, or claiming an exemption, the investment body should accept this as valid if the investor has provided the full details of his or her name and the investment.

Participants in CHESS are able to electronically pass investors' TFNs or exemption codes to registries for recording against holdings maintained on all subregisters.

Investment bodies should accept TFNs quoted, or exemptions claimed, at face value, unless the ATO advises that the investor is "deemed not to have quoted" or provides a corrected TFN.

The TFN is to be attached only to the investment/s specified in the quotation. The investor when making new investments, may authorise the investment body to use his/her TFN which is already on file, in accordance with the Privacy Commissioner's Compliance Notes.

Privacy

The Privacy Act 1988 imposes certain obligations on any person or organisation needing to record TFNs. Briefly, these obligations require an investment body, as a TFN recipient to:

  • use TFNs only for lawful purposes;
  • keep TFNs secure;
  • make all staff aware of the need to protect the privacy of individuals in relation to their TFN information and restrict access to this information to authorised staff;
  • disclose TFNs only in accordance with tax laws (it is a criminal offence under the tax laws to make an unauthorised disclosure of a TFN);
  • dispose of TFN information when it is no longer required, by appropriately secure means; and
  • advise clients that declining to quote a TFN is not an offence while explaining the consequences if they exercise this choice.

The Privacy Commissioner has issued guidelines covering the collection and maintenance of TFNs and from time to time supplements this information with Compliance notes.

Investment bodies should be aware of their privacy responsibilities.

Telephone Quotations

Where an investment body provides a telephone service in accordance with the Privacy Commissioner's Compliance Note 1/90, and is able to validate the TFN through the application of the TFN algorithm, telephone quotation of TFNs is acceptable. Where the TFN proves invalid, the investor should be requested to confirm the number quoted.

Exemption claims and advice of ABNs by telephone are also acceptable.

Agents

The investment body may be informed of an investor's TFN or ABN by another person acting for the investor.

Exemptions

There are a number of categories of investor who are exempt from quoting a TFN in relation to their investments.

These categories include:

  • entities not required to lodge tax returns;
  • pensioners;
  • territory residents ( Norfolk Island ) whose income is exempt under division 1A, part III of the Act; and
  • non-residents.

To claim an exemption, as an organisation not required to lodge tax returns or as a pensioner, the exemption status should be advised on a Tax File Number, Australian Business Number or Exemption Notification form.

A non-resident from whose income non-resident withholding tax deductions are made, or would be made but for certain exemptions under the non-resident withholding provisions, is allowed an automatic exemption from quoting a TFN. Investment bodies should apply this exemption to all accounts belonging to non-resident investors.

It is the non-resident investor's responsibility to ensure that the investment body is aware of their non-resident status.

For the purposes of the TFN legislation, a person who claims exemption from quoting a TFN is to be taken to have quoted a TFN and is therefore treated in the same way as a person who actually quotes.

Children Under 16

Investment bodies are not required to make TFN deductions from investments (other than shares) held by children under 16 years of age provided that:

  • the investment body has records indicating that the investor is under 16 years old; and
  • investment income accrues at the rate less than A$420 per annum.

If the investment body is not notified that the investor is under 16 years, normal TFN rules apply.

Children are considered to be "under 16", for TFN purposes, until the end of the calendar year in which they turn 16.

The A$420 threshold applies to all investments except shares. TFN amounts are to be deducted from dividend payments of A$1 or more where a TFN has not been quoted or an exemption claimed.

Notification of age is an administrative arrangement between the investor and the investment body and can be achieved as follows:

  • by letter or notification form by the investor or another person on the investor's behalf;
  • verbally by the investor or another person on the investor's behalf; or
  • by the investment body using the date of birth information already on file.

Joint Accounts between an adult and a child under 16

When an investment is held jointly by a child under 16 and an adult, the income from the investment will have TFN amounts deducted if it exceeds A$120 per annum (bank, credit union or building society accounts) or A$1 for all other types of investments.

The A$420 threshold, as discussed in the previous section, will only be applied to investments where all investors in a joint holding are under 16 years.

Storage and Destruction of Quotation Forms

The tax law does not require the retention of forms used for the quotation of a TFN.

Investment bodies may choose to:

  • destroy the forms after processing;
  • return the form to the investor, as a form of receipt; or
  • retain the forms under secure conditions as per the TFN guidelines issued by the Privacy Commissioner.

Franked Dividends

TFN deductions are not required from fully franked dividends. Deductions are not to be made from fully franked dividends even where a TFN or ABN has not been provided, nor an exemption claimed.

Where dividends are partly franked and the income is unattributed, an amount is to be deducted from the unfranked portion of the dividend. The amount deducted ( rounded down to the next whole dollar) is calculated using the following formula:

(I - FA) X PF

Where I is the total amount of unattributed income, FA is the franked amount in relation to the dividend and PF is the factor prescribed in the Schedule 3.

Unit Trusts that pass franked dividends from investments in the companies onto their unit holders should deduct the required amount from the total income payment made regardless of the franking credits.

Notification of Amounts Deducted

The investment body must notify an investor of amounts deducted, in the following circumstances:

  • at the time of notifying the investor of the payment of the income in the usual statements sent to the investor, or when sending a dividend or distribution cheque, or when updating passbook information; and
  • in writing, within 21 days of the investor requesting details of any amount deducted from income paid.

Payment of Amounts Deducted

An investment body which deducts an amount from investment income must pay that amount to the Commissioner within 21 days after the end of the month during which the income was paid.

Before paying an investor unattributed income which is not paid in money (eg. certain bonus shares ), an investment body must remit an amount that would have been deducted from the unattributed income if the income has been paid in money, to the Tax Office. Any amount paid to the Tax Office in these circumstances, is recoverable as a debt by the investor to the investment body.

Refund to Investors

Where amounts have been deducted from investment income in error by the investment body they may repay the amount to the investor up until July 15 in the year following the payment. The validity of claims is a matter for the investment body and the investor to determine. A valid TFN or exemption must be held by the investment body prior to any refund being made to any claimant.

An investor who has failed to claim an exemption when entitled and has had an amount deducted from investment income, may in some circumstances be entitled to a refund of that amount from the ATO.

Refunds to Investment Bodies from the ATO

Where an amount has been deducted in error by the investment body, a refund has been made to the investor and the amount has been paid to the Commissioner, the investment body may recover the amount from the Tax Office. This is achieved by under-remitting the next payment by the amount refunded to the investor.

Penalties

There are severe penalties for failure to meet deduction requirements, or failure to remit amounts to the Commissioner. Payments received after the due date can be subject to substantial late payment penalties.

If no payments are to be made to the ATO a nil advice must be submitted or a penalty will be incurred.

Continue reading - Company Meetings