Understanding Family Trust Distribution Tax
Key Considerations for Trustees and Entities to Avoid 47% FTDT on Distributions Outside the Family Group.
Family trust distribution tax (‘FTDT’) is a special, 47%, tax sometimes 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’ (as defined) of the specified individual in the election.
Where such an election has been made by a trustee or another entity, it is important that the original election is retained in the approved form.
FTEs and IEEs can be lodged with the ATO.
Where elections are involved, taxpayers should 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; and
- the timeframes to vary or revoke elections (noting these are limited and that, outside these periods, the elections and the specified individuals cannot be changed).
It is 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 of 47%.
