Tax Tip 375: Who Can Benefit from a Trust After a Family Trust Election has been Made?

I have written about the need for Family Trust Elections to be made here


Tax Tip 255: What is a Family Trust election? Tax Tip 255: What is a Family Trust election?

And some estate planning consequences here

Tax Tip 257: Family Trust Elections and Estate Planning Tax Tip 257: Family Trust Elections and Estate Planning

A Family Trust Election, or FTE, doesn’t change who the beneficiaries of a trust are, it just changes the tax outcome. The trustee could still distribute trust income and capital to any beneficiary, but if that beneficiary is not a member of the family of the ‘test individual’ then Family Trust Distributions Tax would be payable (at 47%).

This is all outlined in Schedule 2F of the ITAA36, but it is a difficult read. I have come across this nice and simple diagram by the ATO which summarises who can be part of the family group.



Family trusts - concessions

 

Note that diagram doesn't include other trusts or companies which could also be members of the family group.

 

Hi @Terry_w Thank you for the useful tips. May I ask what are the requirements for companies/trust to be considered part of family group so that that company/trust can receive distribution from trust with FTE? Must the recipient entity (say bucket company) has fixed entitlement owned by the individuals in family group chart above? Must the recipient entity submit IEE?

 

That is addressed by a interposed entity election likely made at the same time as the FTE. The family control test may be relevant for the elections. This is a very broad test and can even apply where the same legal and tax advisers are involved for afamily group. The control test may need tax / legal advice. Failing to address the FTE / IEE can result in issues with losses and franking credits. Note that a superfund may be a very poor choice despite it seeming permitted. It can lead to non arms length income concerns.

An Interposed Entity Election (“IEE”) is an election to make an entity (company, partnership or trust, including a superannuation fund) a member of the family group of the Test Individual specified in a FTE. The IEE is made where the defined family group members of the Test Individual do not have fixed entitlements (directly or indirectly and for their own benefit) to all of the income and capital of the entity. Accordingly, the entity would not be included as a member of the Test Individual’s family group in the absence of making the IEE.​