Family Trust Elections & FTDT: The Tax Issue Back in Focus (Part 1)

Velocity Legal

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Key Insights

A family trust election is not just an administrative form. Once a family trust election is made, it can affect how trust losses, franking credits, company losses and other tax rules apply across a private group. The choice of test individual matters because it defines the relevant family group. A mistake made when the election is prepared can create problems many years later.
Historic elections can be difficult to identify. Many private groups made family trust elections years ago, often for a specific tax purpose at the time. The difficulty is that advisers and trustees may not always have complete records of when elections were made, who the test individual was, or whether interposed entity elections were also put in place. That makes historic review work critical.
Retrospective elections need careful handling. A retrospective family trust election may seem like a simple solution, but it can create wider consequences across the group. Before making or relying on an election, trustees and advisers should review the trust deed, historic distributions, loss positions, franking credit issues and the family group that will be created by the chosen test individual.

Contents

What is a family trust election, and why does it matter?

Family trust elections are one of the most misunderstood areas of private group taxation. Originally introduced to address trust loss trafficking, they now affect a much broader range of tax issues, including trust losses, company losses, franking credits and small business restructures.

In this episode of Explain That by Velocity Legal, Andrew Henshaw is joined by Special Counsel Ani Tuna to discuss family trust elections, why these rules exist, and why historic trust structures are now receiving closer attention from the ATO.

The discussion covers:

what a family trust election is;
why family trust elections were introduced;
how the family group rules operate;
the role of the test individual;
why family trust elections are now commonly required;
retrospective family trust elections and the risks involved;
why identifying historic elections can be difficult; and
common assumptions and mistakes made by trustees, advisers and private groups.

This episode lays the foundation for Part 2, where the discussion turns to family trust distribution tax and the significant liabilities that can arise when these rules are misunderstood.

A practical discussion for accountants, tax advisers, trustees and private groups dealing with discretionary trusts, family trust elections, interposed entity elections or historic trust structures.

For advice on family trust elections, trust distributions or family trust distribution tax, contact Velocity Legal’s Tax team.

This podcast in no way constitutes legal advice. It is general in nature and is the opinion of the author only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this podcast.

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