Broad overview of the trust loss measures

How does a trust become a family trust?

A trust becomes a family trust for the purposes of the trust loss measures if it makes a family trust election.

The election must specify:

a particular individual (test individual) whose family is to benefit from the trust
an income year from which it is to take place.

A trust cannot make a family trust election unless it is controlled by the test individual's family from the time the election comes into effect. The test individual must be alive at the time the election is made and alive at the time the election is to commence. The election will only take effect from the beginning of the income year specified in the election where the trust has been controlled by the family for the entire income year.

A family trust election can only be revoked in certain circumstances:

a family trust that is a fixed trust can revoke a family trust election in limited situations if certain conditions are met (see subsection 272-80(6) of Schedule 2F to the ITAA 1936), and
following legislative changes effective 1 July 2007, where the family trust election was not required for the utilisation of tax losses, bad debt deductions or accessing franking credits, a trust can revoke its family trust election within a certain time period (see subsections 272-80(6A) and (6B) of Schedule 2F to the ITAA 1936).

A consequence of making the family trust election is that a special tax, called family trust distribution tax, is payable where a family trust gives income or capital (whether through distributions or non-commercial transactions) to persons who are not members of the family group (as defined). This tax is levied on the trustee at 46.5% for the 2006-07 and later income years (48.5% in prior income years) on the amount of the income or capital given to the non-family group member.

Sections within Family trusts

Last Modified: Tuesday, 19 January 2010