If you’re a tax practitioner working in the trusts space, you’re probably looking forward to our upcoming 2021 Private Business Tax Retreat, where multiple sessions will be devoted to untangling the current trusts landscape. 

You can still register for the event, which kicks off on 25 February 2021 both online and in person at Palazzo Versace Gold Coast. But before you settle in for two days of discussion and insights with some of the leading minds in tax, you can brush up on your trusts understanding here and now. 

Making family trust and interposed entity elections to deal with carry forward losses and franked distributions has become common practice. However, some decision makers are failing to consider the impact on the future of the group when doing so. 

Particularly with the upheaval brought about in the business world by COVID-19, these elections can cause issues to arise for tax advisers and their clients if not thought through appropriately.  

At last year’s Private Business Online Series, Neil Brydges, CTA, and Daniel Smedley, CTA, both Principals at Sladen Legal, delved into the family trust regime and the potential impact of getting a family trust election wrong in Tackling trust losses, now available to watch as part of our handy and cost-effective CPD On-Demand Video Bundles. 

Kicking off the session with a refresher on what a family trust is, Neil explained that the trustee of the trust may make an election that the trust is a family trust for the purposes of the ITAA 36 and ITAA 97 at all times after the beginning of a specified year. This is something that can be done retroactively, the process for which Neil dives deeper into during the session. 

Then the family trust election must nominate a test individual – an important step to get right, given that it is generally irrevocable and will continue to apply throughout the existence of the trust. This test individual is the person around whom a family group is formed and defined. 

When we start looking at distributions made outside this family group, the all-important topic of the family trust distributions tax arises.

“If we make distributions – which is a defined term that we’ll look at in a moment – to those outsiders, that’s when we can trigger this liability to this family trust distributions tax,” Daniel explained. 

If the trustee is an individual, that trustee is liable to pay the family trust distributions tax, whereas, if the trustee is a company, then each person who is a director of the company at the time of the particular conferral or distribution is jointly and severally liable to pay the tax. 

“And the tax is at the penalty rate, it’s 47% – the top marginal rate plus the Medicare levy – and that applies to the amount of that conferral or distribution to the outsider. So, quite a significant impost there if we get this wrong and we trigger a family trust distribution tax liability,” Daniel said. 

Watch a snippet of Tackling trust losses below. 

See the bigger picture 

Tackling trust losses is part of our Private Business Online Series Snapshot, a CPD On-Demand video bundle made up of 7 crucial topics from our 2020 Private Business Online event series. This curated CPD bundle allows you to brush up on your business tax knowledge in a way that suits your budget and schedule. 

Bundle your CPD and save 

Save up to $454* while scoring 7 hours of valuable CPD with our Private Business Online Series Snapshot Bundle. 

About Tackling trust losses presenters

Neil Brydges, CTA, is a Principal Lawyer in Sladen Legal’s tax group. Neil is an Accredited Specialist in Taxation Law and Chair of the Tax & Revenue Law Committee with the Law Institute of Victoria, a member of the Tax Committee of the Law Council of Australia, and a Chartered Tax Advisor and member of the SME, Dispute Resolution, and GST Technical Committees with The Tax Institute.

Daniel Smedley, CTA, enjoys solving complex taxation and trust law issues for private enterprise clients. He is also a trusted confidant in planning the succession of his client’s personal and business affairs. Daniel is a Chartered Tax Advisor with The Tax Institute, accredited as a specialist in Taxation Law with the Law Institute of Victoria, and the principal author of the Trust Structures Guide published by The Tax Institute.

*Savings based on total cost of single videos in this series for members (total cost of $594) and non-members (total cost $726).