Tax File Number - Operation

Operation

The primary purpose of the tax file number system is to allow the ATO to match income to the taxpayer who received it ("data matching"). Taxpayers file their tax returns at the end of the financial year, and the ATO can check their quoted income against records from the originators of that income, such as banks, employers, and public companies. Forms of income covered by the TFN rules include:

• Interest from banks and similar institutions, from all account types, including term deposits.
• Interest from bonds and debentures.
• Dividends from public companies.
• Distributions from unit trusts, including cash management trusts.
• Superannuation payments (amounts paid out to a beneficiary).
• Some government benefits, in particular unemployment benefits.

The recipient of such income has a choice between quoting a tax file number, or not doing so. In the latter case, tax is legally required to be withheld from payments at the top marginal rate and sent to the ATO. If the payee does quote his or her TFN, tax is withheld at a marginal rate based on the payee's income. The money withheld is a prepayment of tax. When the recipient files a tax return any so called "TFN amounts" are counted against his or her final liability, and any excess is refunded. Anyone not filing a tax return has been taxed at the maximum rate already.

As a general rule taxpayers do quote their TFN. Institutions usually help by reminding or inviting clients to do so on any new source of income (e.g., new accounts, new debentures, new shareholdings). Forms for quoting include a reminder of the key provisions of the system, for example from Computershare

It is not an offence to withhold your TFN or, where the securities are held for a business purpose, your ABN. However, if you do not provide your TFN or ABN, tax may be deducted from payments of interest and the unfranked portion of dividends and distributions at the highest marginal rate.

If an account is held in the names of multiple investors, each may choose whether to quote or not, but tax is withheld unless at least two have done so.