A Matter of Trusts
This article questions the constitutional validity of family trust distribution tax, arguing that it functions more as a penalty than a tax.
Introduction
The family trust distribution tax (FTDT) has long worked as a deterrent mechanism, discouraging distributions outside the defined “family group” for trusts that have made a family trust election or for trusts, companies and partnerships that have made an interposed entity election. However, a closer examination of the FTDT framework, particularly the mechanisms in Sch 2F of the Income Tax Assessment Act 1936 (Cth) (ITAA36), raises a fundamental question as to the constitutional validity of the FTDT.
This article does not purport to give a definitive answer. Rather, it argues that the FTDT regime should be scrutinised by the High Court, particularly on constitutional and administrative law grounds.
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