Tax file number
A tax file number (TFN) is a number issued by the Australian Taxation Office (ATO) to identify an individual or organisation for tax purposes. Each taxpaying entity (an individual, company, superannuation fund, partnership, or trust) has a unique TFN, which has 8 or 9 digits.
Strict laws ensure that tax file numbers may be recorded or used only for specifically authorised tax-related purposes. Not all individuals have a TFN. A business has both a TFN and an Australian Business Number (ABN); if income is earned as part of carrying on its business it may quote its ABN instead of its TFN.
TFNs have been used by the ATO since the 1930s. In May 1988, following the demise of the Australia Card scheme, the Treasurer Paul Keating announced that the Government intended to introduce an enhanced TFN scheme, and legislation establishing the scheme was passed that year. When it was introduced in 1988 individuals received a 9 digit TFN and non-individuals received an 8 digit TFN. Now both are issued 9 digit TFNs.
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.
TFNs are issued by the Australian Taxation Office. The number itself is 8 or 9 digits, with a check digit. In the past, different number ranges were used to identify different types of taxpayers, but now the numbers have no such embedded meaning. A new taxpayer receives a tax file number within about a month of making an application and providing proof of identity.
Centrelink helps those applying for certain benefits to apply for a TFN at the same time, if they don't already have one. For example unemployment benefits are subject to TFN withholding if a TFN is not quoted. A young person applying for such a benefit for the first time may have never previously needed a TFN.
The ATO has a program in secondary schools for the school to help students apply for a TFN. The school verifies the identity of the student but otherwise has no part in the system (in particular the school never sees the student's TFN).
Foreigners in Australia whose visas permit them to work can apply for a TFN online, using their passport number and visa number. Proof of identity is established by checking those with the Department of Immigration.
Some people and organisations are exempt from TFN withholding; they may state their exemption category instead of quoting a TFN. This includes:
- Income tax exempt organisations (e.g., schools, museums).
- Non-profit organisations.
- Recipients of government pensions who are 80 years and older.
- Children under 16 (earning up to $420 per year of interest, in 2005).
- Foreign residents for interest and dividends (they are subject to non-resident withholding tax instead).
People and organisations in these categories may still need to submit a tax return, but generally speaking these exemptions mean those not needing to submit a tax return don't need to get a tax file number.
The exemption for children does not apply to company dividends, and if a bank account is held in more than one name, it is only exempt if all account holders are under 16. Children can apply for a TFN and quote it in the same way as anyone else, if they wish.
For some forms of income, small earnings are exempt from TFN withholding for any account holder. For example bank interest up to $120 per year is exempt. (However such amounts are still taxable income.)
As is the case with many identification numbers, the TFN includes a check digit for detecting erroneous numbers. The algorithm is based on simple modulo 11 arithmetic per many other digit checksum schemes. The weighting digits of the algorithm have been kept secret within the Australian Taxation Office since its creation, despite being communicated to more than 20,000 external entities in Australia, such as employers, investment bodies and software makers.
The validity of the example TFN '123456782' can be checked by the following process:
The sum of the numbers is 253 (1 + 8 + 9 + 28 + 25 + 48 + 42 + 72 + 20 = 253). 253 is a multiple of 11 (11 × 23 = 253). Therefore the number is valid.
- National Insurance number (a similar number in the United Kingdom)
- Social Insurance Number (a similar number in Canada)
- Social security number (a similar number in the United States)
- PPS number (a similar number in the Republic of Ireland )
- NHI Number (a similar number in New Zealand )
- "Tax file numbers". Commonwealth of Australia. Retrieved 14 November 2014.
- "Top Ten Tips on Tax File Numbers". E-Lodge Taxation Services. Retrieved 14 November 2014.
- Clarke, Roger (12 December 1991). "The Tax File Number Scheme: Political Assurances versus Function Creep". POLICY Magazine 7 (4): 2–6. Retrieved 14 November 2014.
- "30. Identifiers". Commonwealth of Australia. Retrieved 9 November 2014.
- "Taxation Laws Amendment (Tax File Numbers) Act 1988". Commonwealth of Australia. Retrieved 9 November 2014.
- "TFNs for school students". Commonwealth of Australia (Australian Taxation Office). Retrieved 14 November 2014.
- Mark Holmes, Richard Mackey, and Peter Whit (29 April 1999). Management of Tax File Numbers (Report). Australian National Audit Office. ISBN 0-644-38866-8.
- Schütz, Frédéric. "The Australian Tax File Number". Retrieved 14 November 2014.