Q7.1
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What is an interposed entity election?
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A
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An interposed entity election is the election to make an entity (a company, partnership or trust) a member of the family group of the individual specified in a family trust election.
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Q7.2
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Why would an entity make an interposed entity election?
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A
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There are two reasons.
Firstly, to make an entity (in which the members of the family group listed in subsection 272-90(5) do not have fixed entitlements directly or indirectly, and for their own benefit, to all of the income and capital of the entity) a member of the family group of the individual specified in a family trust election. (See ATO ID 2003/164).
Secondly, to exclude a trust from having to comply with the trustee beneficiary reporting rules. Following changes to Division 6D of Part III of the Income Tax Assessment Act 1936 made in 2007, trusts which have made an FTE or IEE, or who are covered by subsection 272-90(5) of Schedule 2F, will be excluded from having to comply with the trustee beneficiary reporting rules (TB rules). This exclusion applies from the start of the 2009 income year and to all later income years.
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Q7.3
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Is there an approved form?
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A
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Yes. The Commissioner of Taxation releases a form each year for the making of IEEs. The election does not have to be made on the approved form. However, where it is not, it must contain all the information requested on that form.
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Q7.4
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Where can I get the approved form for the interposed entity election?
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A
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The approved form is available as follows:
Tax Agents can:
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Q7.5
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Can a company, partnership or trust make more than one interposed entity election?
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A
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Yes, provided each family trust, with which the entity is interposed, has the same individual specified in its family trust election.
(See subsection 272-85(7) of Schedule 2F to the Income Tax Assessment Act 1936).
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Q7.6
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Can a trust make both a family trust election and an interposed entity election?
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A
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Yes, provided the respective family control test is passed for each election. (See ATO ID 2002/1082 and ATO ID 2005/174. See also Q7.11 and Q7.12).
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Q7.7
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Can a superannuation fund make an interposed entity election?
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A
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Yes, provided it passes the family control test (See section 272-87 of Schedule 2F to the Income Tax Assessment Act 1936.)
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Q7.8
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Can a company, partnership or trust make an interposed entity election even if it cannot receive distributions from the family trust in relation to which the election is to be made?
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A
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Yes, provided it passes the family control test (See section 272-87 of Schedule 2F to the Income Tax Assessment Act 1936.)
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Q7.9
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Can an interposed entity election be revoked?
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A
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Yes, in certain circumstances.
Prior to 1 July 2007 IEE's could not be revoked.
Following legislative changes that apply from 1 July 2007, an interposed entity election can be revoked where an entity was at the election commencement time, or becomes at a later time, a member of the family group of the specified individual:
- under subsection 272-90(5), that is where the entity is wholly owned (via fixed entitlements to all of the income and capital of the entity) by family members, or
- under subsection 272-90(3A), that is where a family trust has the same specified individual.
In addition to this, an interposed entity election is taken to be automatically revoked if the family trust election to which it relates is revoked.
(See subsections 272-85(5), (5A) and (5B) of Schedule 2F to the Income Tax Assessment Act 1936).
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Q7.10
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When and how does an entity revoke an interposed entity election?
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A
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Where an entity meets the conditions to revoke their interposed entity election under subsection 272-85(5A) the revocation must be made in the entity's return for the income year from which the revocation is to be effective. If the entity is not required to lodge a return for the income year, the revocation must be given to the Commissioner within two months of the end of the income year from which the revocation is to be effective or such later day as the Commissioner allows.
An entity cannot revoke an interposed entity election under subsection 272-85(5A) unless the revocation is in respect of an income year that occurs during the period:
- starting at the later of:
- the beginning of the income year specified in the election, and
- the beginning of the income year in which the entity became a member of the family group
and finishing at the end of the fourth income year after the income year referred to in (1) or (2) (above), or
- starting at the beginning of the 2008 income year, that is, 1 July 2007, and finishing at the end of the 2009 income year, that is, 30 June 2009.
(See subsections 272-85(5), (5A), (5B), (5C) and (6) of Schedule 2F to the Income Tax Assessment Act 1936).
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Q7.11
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Can an entity make an interposed entity election in respect of two family trusts where the individuals specified in the respective family trust elections are different?
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A
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No, an entity can not make an interposed entity election in respect of two family trusts where the individuals specified in the respective family trust elections are different. (See ATO ID 2002/1082).
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Q7.12
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Can the trustee of a family trust make an IEE to be included in the family group of another family trust where the specified individuals are not the same (for example, where the specified individuals are brothers)?
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A
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Yes. The trustee of a family trust can make an IEE to be included in the family group of another family trust where the specified individuals are not the same, as long as it has not made another IEE to be included in the family group of a different specified individual and the respective family control test is passed for each election. (See ATO ID 2005/174).
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Last Modified: Thursday, 19 February 2009