Tax File Number
Encyclopedia
Tax File Number is an 8 or 9 digit number issued by the Australian Taxation Office
(ATO) to each taxpayer (individual, company, superannuation fund, partnership or trust) to identify that taxpayer's Australian tax dealings. When it was introduced in 1988, individuals received a 9 digit TFN and non-individuals were issued an 8 digit TFN. Now both are issued 9 digit TFNs. 10 digit TFNs are expected in the future, but none have yet been issued.
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 an Australian Business Number
(ABN) and a tax file number; and if income is earned as part of carrying on its business, it may quote its ABN instead of its TFN.
The TFN serves a purpose similar to the American Social Security number
, but its use is strictly limited by law to avoid the functionality creep which has affected the US counterpart.
s 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:
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
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.
. 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 programme in secondary school
s 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
.
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.)
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.
Australian Taxation Office
The Australian Taxation Office is an Australian Government statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system and superannuation legislation...
(ATO) to each taxpayer (individual, company, superannuation fund, partnership or trust) to identify that taxpayer's Australian tax dealings. When it was introduced in 1988, individuals received a 9 digit TFN and non-individuals were issued an 8 digit TFN. Now both are issued 9 digit TFNs. 10 digit TFNs are expected in the future, but none have yet been issued.
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 an Australian Business Number
Australian Business Number
The Australian Business Number, or ABN, is a unique identifier issued by the Australian Business Register which is operated by the Australian Taxation Office...
(ABN) and a tax file number; and if income is earned as part of carrying on its business, it may quote its ABN instead of its TFN.
The TFN serves a purpose similar to the American Social Security number
Social Security number
In the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
, but its use is strictly limited by law to avoid the functionality creep which has affected the US counterpart.
Operation
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 returnTax return
A tax return is a tax form that can be filed with a government body to declare liability for taxation in various countries:* Tax return * Tax return * Tax return * Tax return...
s 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:
- InterestInterestInterest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
from bankBankA bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s and similar institutions, from all account types, including term deposits. - InterestInterestInterest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
from bonds and debentures. - DividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s from public companies. - Distributions from unit trustUnit trustA unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
s, 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
Computershare
Founded in Melbourne, Australia in 1978, Computershare Limited has grown to become the world's largest share registry business. It is a leading financial market services and technology provider, employing over 10,000 people, providing services in 20 countries and to more than 30,000 clients and...
- 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.
Issuing
Tax file numbers are issued by the Australian Taxation OfficeAustralian Taxation Office
The Australian Taxation Office is an Australian Government statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system and superannuation legislation...
. 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
Centrelink
Centrelink is the trading name of the Commonwealth Service Delivery Agency , a statutory authority responsible for delivering human services on behalf of agencies of the Commonwealth Government of Australia. The majority of Centrelink's services are the disbursement of social security payments...
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 programme in secondary school
Secondary school
Secondary school is a term used to describe an educational institution where the final stage of schooling, known as secondary education and usually compulsory up to a specified age, takes place...
s 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
Department of Immigration and Multicultural Affairs (Australia)
The Department of Immigration and Citizenship is an Australian Government department. It is responsible for immigration arrangements, border control, citizenship, ethnic affairs, multicultural affairs. For the 2008-09 financial year, DIAC had an annual operating budget of A$1.7...
.
Exemptions
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., schoolSchoolA school is an institution designed for the teaching of students under the direction of teachers. Most countries have systems of formal education, which is commonly compulsory. In these systems, students progress through a series of schools...
s, museumMuseumA museum is an institution that cares for a collection of artifacts and other objects of scientific, artistic, cultural, or historical importance and makes them available for public viewing through exhibits that may be permanent or temporary. Most large museums are located in major cities...
s). - 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 interestInterestInterest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
and dividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s (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
Bank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
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.)
Check digit
As is the case with many identification numbers, the TFN includes a check digitCheck digit
A check digit is a form of redundancy check used for error detection, the decimal equivalent of a binary checksum. It consists of a single digit computed from the other digits in the message....
for detecting erroneous numbers. The algorithm is based on simple modulo
Modular arithmetic
In mathematics, modular arithmetic is a system of arithmetic for integers, where numbers "wrap around" after they reach a certain value—the modulus....
11 arithmetic per many other digit checksum schemes. The weighting digits of the algorithm have been kept secret within the Australian Taxation Office
Australian Taxation Office
The Australian Taxation Office is an Australian Government statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system and superannuation legislation...
since its creation, despite being communicated to more than 20,000 external entities in Australia, such as employers, investment bodies and software makers.
See also
- Taxation in AustraliaTaxation in AustraliaThere are many forms of taxation in Australia. Individuals and companies in Australia may be required to pay taxes or charges to all levels of government: local, state, and federal governments...
- National Insurance numberNational Insurance numberThe National Insurance number is a number used in the United Kingdom in the administration of the National Insurance or social security system. It is also used for some purposes in the UK tax system...
(a similar number in the United KingdomUnited KingdomThe United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
) - Social Insurance NumberSocial Insurance NumberA social insurance number is a number issued in Canada to administer various government programs. The SIN was created in 1964 to serve as a client account number in the administration of the Canada Pension Plan and Canada's varied employment insurance programs. In 1967, Revenue Canada started...
(a similar number in CanadaCanadaCanada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
) - Social security numberSocial Security numberIn the United States, a Social Security number is a nine-digit number issued to U.S. citizens, permanent residents, and temporary residents under section 205 of the Social Security Act, codified as . The number is issued to an individual by the Social Security Administration, an independent...
(a similar number in the United StatesUnited StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
) - PPS number (a similar number in the Republic of IrelandRepublic of IrelandIreland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
) - NHI NumberNHI NumberThe National Health Index number is the unique person identifier used within the New Zealand health system. It is technically not a number but rather an alphanumeric identifier consisting of 7 characters, with three letters and four numbers...
(a similar number in New ZealandNew ZealandNew Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
)