ATO – What attracts our audit attention
To help you taxpayers get things right, you should consider the behaviours, characteristics and tax issues t
There are four reasons a trustee would make a family trust election:
The trust loss measures
By becoming a ‘family trust’, the non-fixed trust is subject to concessional treatment and most of the trust loss tests do not apply, or apply in a modified way. The measures apply for trust tax losses for the 1995 and later income years, and for debt deductions for the 1997 and later income years.
The trust has a tax loss, to be recouped in future years, or certain debt deductions, but the trust could not satisfy the required trust loss tests. For a non-fixed trust, the trust will need to satisfy the 50% stake test (if applicable), the pattern of distributions test (if applicable), and the control test, and not fail the income injection test, to claim a tax loss or certain debt deductions.
The company loss tracing measures
Broadly, the concession applies for the purposes of the company loss recoupment rules so that where the relevant interests in a company are held by a ‘family trust’, a single notional entity will be taken to own the interests as an individual.
Amendments to the company loss legislation allow a non-fixed trust to benefit from the family trust concession. The measures apply for 1997 and later income years.
The franking credit trading measures
Amendments to the franking credit trading measures allow a non-fixed trust that receives a franked dividend to benefit from the ‘family trust concession’. The measures apply for 1998 and later income years.
Broadly, unless the trustee of a non-fixed trust has elected for it to be a ‘family trust’, a beneficiary with no fixed interest will not be a ‘qualified person’ for the purposes of the 45-day rule. Someone who is not a ‘qualified person’ is denied franking credits, in relation to dividends paid on shares, or interests in shares, acquired after 3pm on 31 December 1997.
Trustee beneficiary reporting rules
The exclusion of trusts that have made an FTE or IEE applies from the start of the 2009 income year and to all later income years.
Generally, these reporting rules require the trustee of a closely held trust to advise the Commissioner of certain details about each trustee beneficiary that is presently entitled to a share of the trust’s net income or tax-preferred amounts. This advice must be provided by the due date for lodgement of the closely held trust’s tax return.