5 May 2021

You may have heard people talking about their family trusts and wondered what they are and why people have them.

A family trust is a non-fixed trust that has made a family trust election. Family trust elections are usually made to access a variety of tax concessions. Some of the benefits they can provide include;

• Making it easier to use the losses of a family trust - family trusts only need to satisfy one modified trust loss test (a modified income injection test) to be able to utilise its tax losses whereas trusts that have not made a family trust election have to satisfy a variety of trust loss measures tests before they can use their tax losses.

• Making it easier to use the losses of a company - there is no need to trace past a family trust to determine whether there has been a material change in the ultimate ownership of the company.

• Easier access to franking credits - a family trust will be a “qualified person” for the purposes of the holding period rule.

• Not having to do trustee beneficiary reporting - trusts that have not made a family trust election have to report the details of each trustee beneficiary they have by the due date of lodgement of the trust’s tax return.

However, the benefits of making a family trust election should be weighed carefully. Once a family trust election is made, it is very difficult to make distributions to beneficiaries that are not in your family group.

A family group consists of a specified individual and the specified individual’s spouse as well as the specified individual and spouse’s parents, grandparents, brothers, sisters, nephews, nieces, children or lineal descendants of the nephews, nieces or children.

Distributions to beneficiaries outside your family group are subject to family trust distributions tax where the trustee will be taxed at the highest individual marginal tax rate of 47% (inclusive of the Medicare levy).

To find out more about family trusts and the potential benefits and implications for you, talk to your adviser or get in touch with the Findex Tax Advisory team, who can help you determine whether you are eligible to make a family trust election.