TAX FILE NUMBERS
Investments
Subject to TFN Arrangements | Receipt
& Recording of TFNs | Privacy
| Telephone Quotation | Agents
| Exemptions | Children
Under 16 | Joint Accounts between
adults and Children Under 16 | Storage
& Destruction of Forms | Franked
Dividends | Notification
of Amounts Deducted | Payments
of Amounts Deducted | Refunds
to Investors | Refunds
to Investment Bodies | Penalties
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 ABNs
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.
