Before concluding that you have a family trust distribution tax liability, have you considered whether the trustee of the family trust has complied with the trust deed?
Overview
Many discretionary trusts make family trust elections (FTEs) to facilitate carrying forward losses and to pass on franking credits to beneficiaries (that is, they are “family trusts”). Despite these benefits, increased ATO audit activity has highlighted the unforgiving nature of family trust distribution tax (FTDT).
Unlike Div 7A of the Income Tax Assessment Act 1936 (Cth), the ATO has no discretion to disregard FTDT caused by honest mistakes and FTDT is not subject to limited statutory amendment timeframes (unlike most provisions of the tax law).
While making a retrospective FTE or interposed entity election may sometimes save the day, the criteria to make those retrospective elections are prescriptive. But before concluding that you have an FTDT liability, have you considered whether the trustee has complied with the trust deed?
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