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Australia Family Trusts Guide

the Australian family trusts. The guide covers: the family trust election — the FTE (the "opting into the concessional treatment") — the trustee of the "discretionary trust" can make the "family trust election (the FTE)" to access the concessional tax treatments; the FTE provides: (a) the "exemption from the trust loss provisions" (the "ability to distribute the losses to the beneficiaries without the restriction"), (b) the "ability to stream the franked dividends to the beneficiaries", (c) the "ability to access the CGT concessions for the small business" (the "small business CGT concessions" for the trust that is the "CGT concession entity"); the FTE defines the "family group" (the "primary individual" and the "relatives" — the "spouse, the children, the grandchildren, the parents, the siblings") and the "test individual" (the "specified individual" — the "primary individual named in the FTE"); the FTE is made through the "ATO online services" or the "paper form" (the "NAT 7401" form); the trust distributions and the streaming (the "allocation of the income to the beneficiaries") — the trustee of the family trust can distribute the "trust income" (the "net income of the trust") to the beneficiaries in the "discretionary proportions"; the trustee can "stream" the specific types of the income to the specific beneficiaries — the "franking credits" (the "franked dividends" distributed to the "low-income beneficiary" to maximise the refund), the "capital gains" (the "capital gains streamed to the beneficiary with the unapplied capital losses"), the "franked distributions" (the "dividend income" streamed to the "corporate beneficiary" for the lower tax rate); the beneficiary must include the "share of the net income of the trust" in the assessable income; the family trust and the tax rates (the "beneficiary tax treatment") — the individual beneficiary who is the "Australian resident" pays the "marginal tax rates" on the trust distributions; the "minor (the under 18) beneficiary" is subject to the "penalty rates" (the "Division 6AA rates" — the "66% on the unearned income above $3,338 for the 2024-25") unless the "excepted income" exception applies; the "corporate beneficiary" is taxed at the "corporate tax rate" of 25% or 30% depending on the "base rate entity status".

Family Trust Election Requirements

  • Making the election: The trustee must lodge the "Family trust election" (the "FTE") with the ATO within the "time limits": (a) by the "lodgement date of the trust tax return" for the income year in which the FTE is first to apply, (b) the FTE is irrevocable (the "once made, the election cannot be revoked") — the trustee must consider the "long term implications" before making the election.
  • Family group definition: The "family group" is defined by the "primary individual" (the "named individual" in the FTE) and the "relatives" — the "lineal descendants" (the "children, the grandchildren, the great-grandchildren"), the "lineal ascendants" (the "parents, the grandparents"), the "spouse" (the "legal spouse or the de facto partner") and the "siblings". The "non-relatives" (the "unrelated beneficiaries") can receive the distributions but the "family trust distributions tax" applies at the 47% rate.
  • Interposed entity election: The "interposed entity election (the IEE)" is required if the family trust holds the interests through the "interposed entity" (the "company, the partnership, the other trust"). The IEE ensures that the FTE applies through the interposed entity. The IEE is made simultaneously with the FTE or separately.

For the trust registration and the reporting obligations, see our Trust & Partnership Tax Guide →.

Family Trust Distributions Tax

  • FTDT rate: The "family trust distributions tax (the FTDT)" applies at 47% on the distributions made to the "non-family group members" (the "individuals outside the family group"). The FTDT is payable by the trust (the "trustee pays the FTDT" — not the beneficiary). The FTDT ensures that the family trust benefits are limited to the family group.
  • Exclusions from the FTDT: The FTDT does not apply to: (a) the distributions to the "charities" (the "deductible gift recipients"), (b) the "commercial transactions" (the "arm's length payments for the goods or the services"), (c) the "distributions under the court order" (the "family law orders" or the "bankruptcy orders").
  • Family trust and the franking credits: The family trust can distribute the "franking credits" to the beneficiaries without the "qualified person rule" restriction (the "holding period rule" does not apply to the family trust distributions). The beneficiary receives the franking credits and can claim the "franking credit offset" in the tax return.

For the franking credits and the dividend imputation, see our Investment Income Tax Guide →.