How do family trust distributions work?
Family Trust income The trustee is free to distribute trust income to as many beneficiaries as possible, and in proportions that take best advantage of those beneficiaries’ personal marginal tax rates. The beneficiaries then pay the tax on distributions made to them.
Do trusts have to make distributions?
A trustee is required to complete trust distributions within a reasonable time. However, sometimes there are estate tax or other tax issues, property or other assets that need to be sold, beneficiary disputes or other issues that slow down the process.
Can you distribute losses from a family trust?
Generally, the losses incurred by a trust remain trapped in the trust and cannot be distributed to beneficiaries. However, the losses that are incurred by a trust may be carried forward and offset against assessable income of the trust in calculating the trust’s taxable income in future years.
Can you revoke a family trust election?
Under the amendments, the family trust election can be revoked in respect of a year that occurs before the end of the fourth year after the year specified in a family trust election.
What is family trust distribution tax?
Family trust distribution tax is payable on any distribution made to a person outside a ‘family group’ by either: a trust, partnership or company that has made an interposed entity election to be included in the ‘family group’ of a family trust.
Why are family trusts entitled to tax concessions?
The FTE entitles the trust to access certain tax concessions. The trade-off is that family trust distribution tax is imposed when distributions are made outside the family group. There are five main reasons to become a family trust:
When do you have to pay tax on family trust distribution?
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. See further: Family trust distribution tax.
When does FTD apply to a family trust?
FTD tax is applicable when a distribution is made outside the family group designated by a family trust election. The term “distribution” has an expanded meaning for this purpose, and includes both capital and income which are defined in sections 272-45 to 272-63 of Schedule 2F to the Income Tax Assessment Act 1936.
Can a FTE be made retrospectively in a family trust?
You can make an FTE (or IEE) retrospectively. The ‘primary individual’ or ‘test individual’ is the individual whose family group is used for the election. A FTE limits the beneficiaries to which the trust can make distributions. So it is crucial to get this right. To specify the most appropriate primary individual in the election.
The FTE entitles the trust to access certain tax concessions. The trade-off is that family trust distribution tax is imposed when distributions are made outside the family group. There are five main reasons to become a family trust:
When do you pay family trust distribution tax?
Family trust distribution tax (FTDT) is payable where: a trustee of a trust has made a FTE a partnership’s partners, a company or the trustee of another trust have made an IEE to be included in the family group of the individual specified in the FTE made by the family trust, and
How does FTE work in a family trust?
A FTE is a tax legal mechanism to restrict distributions by a discretionary trust to a group of beneficiaries, which we identify as the ‘family group’. The restriction is enforced by applying a penalty tax to distributions made outside the family group. The penalty tax is the top marginal personal tax rate.
When does a family trust have to pass the family control test?
The income year specified in the FTE must have ended before the FTE is made. This is because an FTE can only be made if the trust passes the family control test at the end of the specified income year.