Compliance
Trusts & Beneficiaries: What MTAS Phase 2 Means for Closely Held Trusts From July 2026
The ATO’s MTAS Phase 2 brings new reporting rules for closely held trusts—mandatory beneficiary TFN info will be required starting 1 July 2026.
By NomadicTax Research Team • 5-8 min read • February 27, 2026
## Key Changes on the Horizon
From **1 July 2026**, under MTAS Phase 2, closely held trusts will have new mandatory reporting obligations embedded in the trust return lodgment process. The major shift is the requirement to report each beneficiary’s Tax File Number (TFN) and indicate a “No TFN Provided” option when beneficiaries don't quote their TFN.([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai))
## Who’s a Closely Held Trust?
A closely held trust is generally one where 20 or fewer individuals have—directly or indirectly—fixed entitlements to 75% or more of the trust’s income or capital. Discretionary trusts also often fall into this category. Trusts excluded include complying super funds, certain unit trusts, employee share trusts and other specifically exempted trusts.([ato.gov.au](https://www.ato.gov.au/forms-and-instructions/trust-tax-return-2022-instructions/appendixes/appendix-11-closely-held-trust-reporting?anchor=Appendix11Closelyheldtrustreporting&utm_source=openai))
## What Trustees Must Do
- **Collect and verify TFNs**: You’ll need to gather TFNs for all beneficiaries or document that the beneficiary has not provided it. Use a trustee beneficiary statement with an indicator (“No TFN Provided”) for those who refuse or can't supply it.([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai))
- **Update trust return forms**: The statement of distribution will carry new labels including “closely held trust indicator” and “No TFN Provided” option. These get lodged as part of the annual trust return.([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai))
- **Software & API readiness**: Expect updates to Standard Business Reporting (SBR)-enabled software. A non-individual pre-fill API is proposed for trust distribution income. Early communication between trustees and DSPs (Digital Service Providers) will be key.([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/MTAS220260121?utm_source=openai))
## Why It Matters — Practical Implications
- **Non-compliance risk**: Without TFNs, trustees may be required to withhold at top marginal rates on distributions or entitlements for beneficiaries.([ato.gov.au](https://www.ato.gov.au/businesses-and-organisations/trusts/in-detail/closely-held-trusts/tfn-withholding-for-closely-held-trusts/what-trustees-need-to-do?anchor=Whattrusteesneedtodo&utm_source=openai))
- **Paperwork & system changes**: You’ll need to adjust internal record-keeping, systems, and possibly workflows to capture beneficiary details including TFN, address, and validation hit or mismatch warnings. Electronic reporting & automated verification are becoming more crucial.([ato.gov.au](https://www.ato.gov.au/forms-and-instructions/trustee-tfn-report?utm_source=openai))
## Example Scenario
Sarah runs a discretionary trust with 3 individual beneficiaries and 1 company beneficiary:
| Beneficiary | Quotes TFN? | Required Actions |
|--------------|----------------|---------------------------|
| Alice (individual) | Yes | Record and include TFN in statement of distribution; trustee return reports usual beneficiary details. |
| Bob (individual) | No | Mark “No TFN Provided”; trustee must withhold from future entitlements/distributions under rules for non-quoting beneficiaries; include this scenario in return. |
| Company X | Yes | Include ABN/business identity and TFN (if applicable); entity type labels updated. |
| Charity Trust | Exempt entity | No TFN withholding applies; ensure accurate treatment per excluded beneficiary rules. |
## Action Steps You Can Take Now
- Audit current beneficiary list: Do you have TFNs for everyone? If not, request them.
- Check your trust deed: Ensure it allows for distinguishing fixed vs discretionary entitlements—this can affect classification.
- Update reporting templates and software tools before Tax Time 2027.
- Train staff or engage advisors so that trustees understand TFN obligations, what constitutes “present entitlement”, and how withholding works.
- Maintain good correspondence with beneficiaries, ensuring you properly document when TFNs are missing.
## Summary
The coming changes under MTAS Phase 2 impose higher standards of transparency and compliance for closely held trusts. Accurate beneficiary TFN reporting from 1 July 2026 is no longer optional—it’s embedded in the law. Get ahead now to avoid penalties and ensure smooth lodgments in Tax Time 2027 and beyond.