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Know your stuff: Family trust elections and interposed entity elections

Key points to be aware of regarding your trustee clients with family trust elections and interposed entity elections.

Published 30 May 2024

Family trust distribution tax (FTDT) is a special, 47%, tax payable by a trustee, director or partner. It applies when a trust has made a family trust election (FTE), or an entity has made an interposed entity election (IEE), and makes a distribution outside the family group of the specified individual in the election.

Where an FTE or IEE has been made by a trustee or another entity, it's important that you retain the original FTE and IEE in the approved form. FTEs and IEEs can be lodged with us.

FTEs and IEEs shouldn’t be 'set and forget' by trustees or their tax professionals. They need to be front of mind when administering a client's tax affairs, especially distribution decisions, as these may result in FTDT liabilities.

Where elections are involved, we encourage you and your clients to consider the following on an annual basis:

  • if the election is needed and whether it can, and should be, revoked
  • whether the specified individual remains the most suitable person and if not, whether the specified individual can, and should be varied
  • the timeframes to vary or revoke elections – noting these are limited and that outside these periods, the elections and the specified individuals can’t be changed.

It’s important to recognise who the members of the specified individual's family group are when making annual trustee resolutions, as distributions outside the family group will result in FTDT (47% tax). Where FTDT arises, each FTDT payment must be accompanied by the family trust distribution tax payment advice.

 

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