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ATO Interpretative Decision

ATO ID 2005/174 (Withdrawn)

Income Tax

Family trusts making interposed entity elections: different primary individuals
FOI status: may be released
  • This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Can the trustee of a family trust make an interposed entity election (IEE) pursuant to section 272-85 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) to be included in the family group of another family trust where the primary individuals are not the same (in this case the respective primary individuals are brothers)?

Decision

Yes. The trustee of a family trust can make an IEE to be included in the family group of another family trust where the primary individuals are not the same as long as the respective family control test is passed.

Facts

X is the primary individual specified in the family trust election (FTE) of the X family trust. The FTE is in force.

Y is the primary individual specified in the FTE of the Y family trust. The FTE is in force.

X and Y are brothers.

The trustee of the X family trust intends to make an IEE pursuant to section 272-85 of Schedule 2F to the ITAA 1936 to be included in the family group of Y.

The X family trust passes the family control test pursuant to subparagraph 272-87(1)(a)(ii) of Schedule 2F to the ITAA 1936 in relation to primary individual Y as X is able to control the trust in accordance with paragraphs 272-87(2)(a) to 272-87(2)(e) of Schedule 2F to the ITAA 1936.

Reasons for Decision

An entity may make an IEE to be included in the family group of an individual specified in a family trust election pursuant to section 272-85 of Schedule 2F to the ITAA 1936. Subsection 272-85(4) of Schedule 2F to the ITAA 1936 requires the entity to pass the family control test at the end of the income year.

Broadly, an entity passes the family control test pursuant to section 272-87 of Schedule 2F to the ITAA 1936 if the entity is controlled by either the primary individual, or by members of the primary individual's family or a combination of both.

As the primary individuals of the X and Y family trusts are brothers, the X family trust can pass the family control test pursuant to section 272-87 of Schedule 2F to the ITAA 1936 in relation to the Y family trust. This is because pursuant to subparagraph 272-87(1)(a)(ii) of Schedule 2F to the ITAA 1936 one or more members of the primary individual's family to which the IEE will relate, controls the family trust it is being interposed into.

Therefore, subject to the other conditions in section 272-85 of Schedule 2F to the ITAA 1936 being satisfied, the trustee of the X family trust can make a valid IEE to be included in the family group of Y.

Subsection 272-85(7) of Schedule 2F to the ITAA 1936 restricts an entity making multiple IEEs to situations where the primary individual is the same person in respect of all the family trusts being interposed into. In this case, any further IEEs being made by the trustee of the X family trust can only be in relation to family trusts where Y is the primary individual.

Note: If the X family trust makes distributions to persons who are not members of the family group of X, as defined by section 272-90 of Schedule 2F to the ITAA 1936, a liability for family trust distribution tax (FTDT) under subsection 271-15 of Schedule 2F to the ITAA 1936 will be imposed.
However, because the trustee of X family trust has also made an IEE in relation to the Y family trust, subsection 271-20 of Schedule 2F to the ITAA 1936 will apply to impose FTDT upon any distributions which are made to persons who are not members of Y's family group.
This effectively narrows the list of potential persons who can benefit from distributions of the X family trust, without attracting FTDT liability, to those persons who are common 'family members' of both the X and Y family trusts.

Date of decision:  14 June 2005

Year of income:  Year ended 30 June 2005 Year ended 30 June 2006

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2F
   section 271-15
   section 271-20
   section 272-85
   subsection 272-85(4)
   subsection 272-85(7)
   section 272-87
   subparagraph 272-87(1)(a)(ii)
   paragraph 272-87(2)(a)
   paragraph 272-87(2)(b)
   paragraph 272-87(2)(c)
   paragraph 272-87(2)(d)
   paragraph 272-87(2)(e)
   section 272-90

Keywords
Family control test
Family group
Family trust distribution tax
Family trust election
Family trusts
Interposed entity election
Primary individual

Business Line:  Losses and Capital Gains Tax Centre of Expertise

Date of publication:  24 June 2005

ISSN: 1445-2782

history
  Date: Version:
  14 June 2005 Original statement
You are here 19 March 2010 Archived

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