Family Trust Elections & FTDT: The Tax Issue Back in Focus (Part 2)

Velocity Legal

No items found.

Listen

Key Insights

FTDT can be triggered by a distribution outside the family group. Once a family trust election is in place, distributions need to be tested against the relevant family group. If a trust or entity distributes outside that group, family trust distribution tax may arise. The problem is that the answer often depends on historic documents, the identity of the test individual and whether the correct interposed entity elections were made.
Genuine mistakes can produce severe outcomes. Family trust distribution tax risk is not limited to deliberate tax avoidance. A wrong test individual, missing election, incorrect assumption about the family group or undocumented historic arrangement can create significant liabilities. The Thomas family case has drawn attention to how technical errors can produce outcomes that appear disproportionate to the mistake.
Private groups should review old trust arrangements before the ATO does. Many family trust election issues only become visible during an ATO review, audit or dispute. By then, records may be incomplete and the options for fixing the problem may be limited. Private groups should review historic family trust elections, interposed entity elections, trust distributions and family group assumptions before making further distributions or responding to ATO enquiries.

Contents

What happens when a family trust distribution falls outside the family group?

Family trust distribution tax, or FTDT, is rapidly becoming a major risk area for private groups, trustees and advisers. The consequences can be severe, particularly where historic trust arrangements, family trust elections or interposed entity elections have not been reviewed for many years.

In Part 2 of this Explain That series, Andrew Henshaw is joined by Special Counsel Ani Tuna to discuss family trust distribution tax, how FTDT is triggered, and why these issues are now emerging in ATO reviews, audits and disputes.

The discussion covers:

how family trust distribution tax is triggered;
the relationship between family trust elections and FTDT;
distributions outside the relevant family group;
interposed entity elections and common structuring mistakes;
the Thomas family case and the reported $13 million FTDT liability;
why historic trust structures are under increasing ATO scrutiny;
how genuine administrative errors can create severe tax liabilities; and
practical issues now emerging in ATO reviews and disputes.

This episode is designed for accountants, tax practitioners, advisers, trustees and private groups dealing with discretionary trusts, family trust elections, interposed entity elections and historic trust structures.

For advice on family trust elections, interposed entity 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.

Move your business forward with Explain That. Reduce your risk, and seize opportunity.

Join 'Explain That', where Australian professionals get monthly insights from Velocity Legal.

Thank you! You are now subscribed.

Oops! Something went wrong. Please fill in the required fields and try again.