Compliance
Trusts and Beneficiaries: ATO’s MTAS Phase 2 – What Closes-Held Trusts Must Prepare For
From July 2026, closely held trusts will be required to report beneficiary TFNs and new trust-return labels as the ATO modernises trust reporting. Here’s what trust trustees and digital service providers need to know now.
By NomadicTax Research Team • 5-8 min read • March 1, 2026
## What is MTAS Phase 2?
The **Modernisation of Tax Administration Systems (MTAS) Phase 2** is an ATO-led reform project enhancing how trust and beneficiary data are collected and reported. It aims to improve data quality, trust return accuracy, and transparency across both trustees and beneficiaries. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai))
## Key Changes for Closely Held Trusts (Starting 1 July 2026)
| Requirement | What Changes | Why It Matters |
|-------------|---------------|----------------|
| **Mandatory Beneficiary TFNs** | Trustees must collect and report the Tax File Number (TFN) of each beneficiary in closely held trusts via trust return lodgment. | Ensures correct withholding and prevents misuse of trust structures; TFN omissions carry penalties. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai)) |
| **New Labels on Trust Returns** | Introduces a “closely held trust indicator” and a “No TFN Provided” label in the Statement of Distribution. | Helps identify trusts at risk of non-compliance and allows the ATO to follow up. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai)) |
| **Reporting Scale & API Integration** | Trusts with over 200 beneficiaries will have special lodgment channels via Standard Business Reporting (SBR) and API systems. | Reduces administrative burden while preserving data integrity for large trusts. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai)) |
## Practical Actions & Examples
- If you're a trustee of a **closely held trust** (e.g. family trusts with few beneficiaries), begin collecting TFNs now, and ensure you have processes to capture TFNs from all beneficiaries.
- For trusts with **no-TFN situations**, expect to use the “No TFN Provided” label—plan to document any beneficiary’s failure to provide a TFN, and manage associated risks or penalties.
- If you use digital software to lodge trust returns, verify if your provider supports the new labels and beneficiary TFN fields by mid-2026.
- Trustees with many beneficiaries should liaise with their Digital Service Provider (DSP) to ensure compliance with enhanced reporting especially over 200 beneficiaries via SBR or APIs. Wanting to avoid late or incorrect lodgments means testing with the updated system.
## Example Scenario
Sarah runs a family trust with 4 beneficiaries. Previously, she reported distributions without specifying individual TFNs. From 1 July 2026, she will need to:
1. Collect TFNs from each beneficiary. If someone declines, use the “No TFN Provided” label.
2. Mark the trust as “closely held” when lodging the trust return.
3. Update her accounting software or work with a software provider to lodge via the Enhanced Trust Return form.
## Why This Is Important
- **Compliance**: Failing to report TFNs accurately or using correct labels may trigger audit or penalties.
- **Transparency**: ATO gains visibility into beneficiaries, potentially reducing avoidance through secret distributions.
- **Administrative Efficiency**: Over time, standardised data and API integrations should reduce paperwork and manual corrections.
## Timeline & What You Should Do Now
- **Immediately**: Review whether your trust is “closely held” and identify all beneficiaries. Begin TFN collection.
- **Mid-2026**: Ensure your software or provider supports the new fields/labels; trial sample returns or test via DSP.
- **By 1 July 2026**: Be ready for live lodgments under the new system.
## Summary
This reform is part of the ATO’s broader strategy to modernise tax reporting, reduce errors, and improve trust transparency. Closely held trusts must prepare now, particularly around TFNs and accurate labeling of beneficiary distributions. Software updates and process reviews can help avoid rushed changes later.