Family Trust Election

Making a family trust election to access losses and franking credits

Special rules in the ITAA1936 restrict a trusts ability to utilise revenue losses (and debt reductions such as bad debts) unless the trust satisfies several tests, largely to do with ownership or control of the trust and whether the trust income has been inappropriately injected into the trust.

However, if you make a family trust election, the trust will be subject to one test, generally making it easier to claim the revenue losses. Broadly, the family trust election prohibits ‘outsiders’ of the family group injecting income into the trust.

A family group is comprised of a ‘test’’ individual and then their family members, but can also extend to entities wholly owned by members of the family and entities that have made an interposed entity election to be included in the family group.

A family trust election also enables a beneficiary to access franking credits distributed to them in respect of dividend on shares acquired after 31 December 1997.

Unfortunately once a family trust election is made, top marginal rate of tax applies to distributions made outside of the family group. Once made, a family trust election is also, (except in very limited circumstances), irrevocable.

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For all your taxation legal advice and any other matters pertaining to trusts, contact BNT Legal today.