Legislation specifies the rules by which trust income should be calculated for tax purposes and how that income should be taxed \u2014 that is, whether in the hands of the trust or the beneficiaries. Therefore trusts, if set up in the right way, can help you legally minimise some tax liabilities.<\/p>\n But a family trust is a special version of such entities, and cannot simply be established as other trusts, but must \u201celect\u201d to be a family trust. It is not sufficient to simply include the words \u201cfamily trust\u201d in the name. A trustee only makes a valid family trust election where they have satisfied the relevant tests, and made an election in writing in the approved form.<\/p>\n The upside<\/strong> There are five key concessions available through a family trust election (FTE):<\/p>\n Eligibility and conditions<\/strong> The\u00a0family control test<\/a>\u00a0looks at who can control the application of income or capital of the trust, which should include some or all of:<\/p>\n While any kind of trust can elect to be a family trust, the need to pass the family control test restricts the choice to a trust that is not widely held and where a specific family effectively controls the trust.<\/p>\n The election does not have to be made on an approved form, however use of the\u00a0form published by the ATO (which is updated annually<\/a>) can help to ensure that all the relevant information for a valid election is provided. The NAT number for this form is NAT 2787-6.2018 (the last four digits on this refer to the year, so changing these to match the relevant year will get you the required form).<\/p>\n An election is only required to be made once, but the trustee is required to include the income year specified in the family trust election on the trust tax return each year while the election remains in force.<\/p>\n The downside<\/strong> Family trust distribution tax is applicable\u00a0when\u00a0a distribution is made outside the family group (which is designated by\u00a0making the election). Therefore making a family trust election is an important step for the trustee to take. Note that the term \u201cdistribution\u201d has an expanded meaning for the purposes of family trusts, and includes both income and capital.<\/p>\n Note that a reasonable salary, wage or other benefit (such as superannuation contributions or fringe benefits) provided to, or for the benefit of, an employee for work performed is not considered to be a distribution.<\/p>\n The rate of family trust distribution tax is set at the top marginal rate plus Medicare levy.<\/p>\n A separate payment advice is required for each distribution of income or capital which attracts a family trust distribution tax liability, and remittance of the tax to the ATO is required to be accompanied by a\u00a0Family trust distribution tax payment advice form<\/u><\/a>.<\/p>\n Payment is generally required within 21 days after the distribution is made, or if the distribution was made before an election form was lodged, 21 days after the election.<\/p>\n <\/p>\n![\"\"](\"https:\/\/cruzandco.com.au\/wp-content\/uploads\/2018\/06\/family-trust.jpg\")
<\/a>Trusts can be a very handy tool for managing one\u2019s financial affairs, as well as estate planning. A trust is established whenever there is a separation of the legal ownership (for example, the name appearing on a business register or land title) from the beneficial owner of an asset (in other words, the person that a court would deem to be the true owner).<\/p>\n
\nBeing a family trust has specific taxation concessions, as electing to be a family trust restricts and specifies the trust beneficiaries, which in turn can secure or simplify the claiming of tax losses, debt deductions, franking credits and negate certain trust beneficiary reporting rules.<\/p>\n\n
\nFamily trust elections\u00a0can be made at any time, provided that from the beginning of the specified income year until June 30 of the income year immediately preceding that in which the election is made:<\/p>\n\n
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\nA family trust may be less flexible as a result of making an election, and it is also potentially exposed to another tax, the\u00a0family trust distribution tax<\/a>.<\/p>\n