Family Trust Distribution Tax: A sleeper issue for growing families By Jonathon Leek Legal Practitioner Director, Deloitte Legal Family Trust Elections (“FTEs”) and Family Trust Distribution Tax (“FTDT”) have been a feature of the income tax landscape since 1998. Tax lawyers and accountants should be familiar with them. But they need to be on guard against that familiarity breeding complacency. As children grow up, spread their wings, establish their own business and investment vehicles, and engage their own advisers, the essential “family group” may not be what the family thinks it is. In that case, there is a risk of inadvertently triggering the imposition of FTDT at the rate of 47%.
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the carry forward and utilisation of trust losses is easier for a family trust because only a modified “income injection test” needs to be passed;
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the carry forward and utilisation of company losses is easier because the “continuity of ownership test” applicable to the loss company does not require tracing of ownership through a family trust;
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a family trust is able to satisfy the “holding period rule” thereby enabling beneficiaries to more easily benefit from franking credits attached to dividends received by the trustee;
Reasons for making a family trust election
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the small business restructure roll-over relief from capital gains tax includes special rules for family trusts; and
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family trusts are excluded from the trustee beneficiary reporting rules.
Making an FTE entitles the trust to access certain tax concessions. In summary, the tax concessions a family trust may access are as follows: 28 | BRIEF APRIL 2021
There are, therefore, good reasons for making an FTE. The trade-off, however, is that FTDT is imposed when distributions are made outside the family group.
Making a family trust election A “family trust” is a trust in respect of which an FTE is in force.1 The trustee of a trust may make an FTE if it passes the “family control test” for the income year to be specified in the election.2 As the name suggests, the family control test requires the trust to be controlled by members of a particular family in one of a number of specified ways.3 An FTE must be made in writing and in the approved form.4 Importantly, it must specify an individual as the individual whose family group is to be taken into account in relation to the FTE.5 Subject to certain limited exceptions, once made,
