Family Trust and Interposed Entity Elections - Where Succession Planning Goes Wrong

The Tax Institute

The Tax Summit

Family trust elections (FTEs), and the related interposed entity elections (IEEs), have been a feature of the tax law for almost 30 years with the rules effectively unchanged since 2007.

FTEs and IEEs can offer considerable tax advantages for family groups. However, an FTE is a doubleedged sword, and non-compliance can produce serious consequences, including FTDT.

FTDT is not contingent on the Commissioner issuing an assessment; it becomes due and payable 21 days after a distribution to a person outside the family group, such that liabilities can accrue over many years without the trustee being aware. Further, FTDT is not subject to the normal statutory review periods in section 170 of the Income Tax Assessment Act 1936,1 meaning liabilities could potentially accrue back to 1996.

The FTE, IEE, and FTDT rules are complex, and the Australian Taxation Office (ATO) has said that FTEs and IEEs are an area of compliance focus. That there is little case law or ATO guidance adds to the complexity.

The full paper is available to Sladen Smart Members sign up/login here to continue reading.