You may hear the term family trust and you may even have a family trust, but do you know exactly what that means?
A family trust for tax purposes is one whose trustee has made a valid family trust election. It is not sufficient to simply include the words ‘family trust’ in your trust’s name.
A trustee only makes a valid family trust election where they have satisfied the relevant tests and makes an election in writing in the approved form. Once the election has been made, it cannot be varied or revoked except in limited circumstances.
There are five main reasons to become a family trust:
• The trust loss measures and bad debt deductions
• A company loss tracing concession
• The holding period rules for access to franking credits
• Trustee beneficiary reporting rules
• Small business restructure roll-over tests
There are however a number of factors that need to be considered before a family trust election is made, including:
• A family trust election cannot be revoked
• Selection of the “test individual” is important
Tax at 47% can apply where distributions are made outside of the family group.
It is important to remember that unless a family trust election is needed for one of the reasons set out above, it is generally not recommended that a trustee make one.
Should you have any queries about family trust elections, please contact your Harris Black team to discuss further.