The Common Reporting Standard (CRS), which is the single global standard for the collection, reporting and exchange of financial account information on foreign tax residents, is due to come in to effect on 1 July 2017.
Under the CRS and the US Foreign Account Tax Compliance Act (FATCA), many Australian trusts are considered financial institutions and will now be obliged to identify its financial account holders. Where any are found to be non-Australian tax resident, the trust must report personal and financial information about these to the ATO on an annual basis.
BDO tax director Paul Crean told Accountants Daily that accountants need to get their head around the legislation before 1 July 2017 and speak to any clients with trusts that fall under the new requirements.
“At a high-level the aim of the legislation is fairly clear: identification of all non-resident beneficiaries of trusts and reporting the beneficiaries’ financial and personal information to the ATO for exchange with tax authorities in the countries where the beneficiaries are tax resident,” Mr Crean said.
“However, experience tells us that each client’s circumstances are unique – the way in which their operations are structured, assets held, classes of beneficiaries, etc – and what clients really want to know is ‘What does it mean for me?’ Conversations will be needed to explain both how the information is collected and the potential implications for individuals who are reported as a result.”
Mr Crean said that many trusts, which would otherwise not be considered a financial institution, fall under the new requirements.
“Although the ATO has published useful guidance covering both FATCA and the CRS, the legislation is very wide-ranging and captures many unsuspecting entities, including many trusts,” Mr Crean said.
“There is a temptation for accountants to think that they do not act for ‘financial institutions’ (FIs) and indeed they may not, in the commonly accepted sense, but CRS is defining many trusts – as well as personal investment vehicles – as FIs, so this is a myth that needs busting.”