Entity Setup
Structuring Trust Entities Post-TFN Requirements & Interest-Deduction Changes
From 1 July 2025, changes around deductibility of interest on tax debts, plus soon-to-be mandatory TFN reporting for closely held trusts, require entity setup redesigns for many Australians.
By NomadicTax Research Team • 5-8 min read • June 18, 2026
## Legislative & Regulatory Changes in Entity Setup
- As of **1 July 2025**, Australia will **no longer allow general interest charge (GIC) or shortfall interest charge (SIC) incurred on or after that date** to be deducted by taxpayers. ([ato.gov.au](https://www.ato.gov.au/tax-and-super-professionals/for-tax-professionals/tax-professionals-newsroom/changes-to-deductibility-of-interest-on-ato-debts?utm_source=openai))
- From **1 July 2026**, mandatory beneficiary **Tax File Number (TFN) reporting** for closely held trusts will be embedded within trust return lodgment under the Modernisation of Tax Administration Systems (MTAS) Phase 2 reforms. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai))
## What to Consider When Setting Up or Modifying Trusts
- **Trust type**: A closely held trust (where beneficiaries are limited in number) may trigger higher scrutiny. If so, ensure all beneficiaries’ TFNs are collected and recorded properly.
- **Documentation**: Trustee resolutions, distribution minutes, trust deeds should clearly identify beneficiaries, TFNs. Lack of TFNs can lead to inability to distribute income or penalties.
- **Interest expenses**: For ATO debts, interest charges accruing post-1 July 2025 are no longer deductible; factor this into financing decisions.
## Impacted Areas & Practical Examples
| Scenario | Old Setup | Changed Implication |
|---|---|---|
| Trust with three beneficiaries who don't have TFNs | Previously you could distribute without full beneficiary disclosure | Post 1 July 2026 distributions **must report beneficiary TFNs**; failing to collect them may hamper distributions or invite penalties. |
| Business loan used to finance operations, interest accruing due to delay in tax payments | Interest deductible under prior rules | Interest (GIC/SIC) from 1 July 2025 **not deductible**, raising cost of carrying tax debt. |
## Actionable Steps for Entities & Advisors
1. **Review trust deeds** to ensure they enable collection and disclosure of beneficiary TFNs.
2. **Communicate with beneficiaries** to obtain their TFNs and keep records for lodgment.
3. **Plan for financing with fewer tax-deductible interest opportunities**, especially on overdue tax liabilities.
4. **Update accounting systems** to distinguish interest charges incurred before vs after 1 July 2025.
5. **Seek professional entity structuring advice** if considering new trust or inter-entity loans, keeping tax deductibility in mind.
## Example Scenario
Consider a family trust set up to hold rental properties. There are four beneficiaries, one of whom hasn’t provided a TFN. Under current rules, distributions are made and taxed at beneficiaries’ rates. Under MTAS, without TFN info, the trust may have difficulties reporting the distribution or could face penalties. Also, if the trust has tax liabilities into next year, interest accrued after 1 July 2025 won’t be deductible—raising costs for financing.
## Key Takeaways
- Collect beneficiary TFNs **before the 2026–27 year**, especially for closely held trusts.
- Don’t assume interest on tax debts remains deductible—**post-1 July 2025 rules** make it non-deductible.
- Entity structures should be reviewed preemptively to ensure compliance and optimize tax outcomes.