ATO Interpretative Decision
ATO ID 2013/21
Income Tax
Interposed Entity Elections: trust in respect of which the relevant Family Trust Election was made ceases to existThis 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is an interposed entity election (IEE) still in force under subsection 272-85(6A) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) if the trust in respect of which the relevant family trust election (FTE) was made ceases to exist?
Decision
Yes, an IEE for a company is still in force under subsection 272-85(6A) of Schedule 2F to the ITAA 1936 despite the trust in respect of which the relevant FTE was made, ceasing to exist.
Facts
A discretionary trust had a valid FTE in force just prior to the trust being vested.
The FTE was not revoked.
A company had an IEE in force so that it was included in the family group of the discretionary trust.
The IEE was not revoked at anytime before the vesting of the trust.
The trust vested distributing all capital and income of the trust.
Reasons for decision
Subsection 272-85(1) of Schedule 2F to the ITAA 1936 allows a company to make an election to be included in the family group of the individual specified in the FTE. Such an election is in force at all times after the election commencement time if it is not revoked (paragraph 272-85(6A)(a) of Schedule 2F to the ITAA 1936).
An IEE is generally irrevocable.
An IEE can only be revoked in the limited situation where the entity was, or becomes, a member of the family group of the individual specified in the FTE (otherwise than by reason of the IEE) and subject to the four year rule in subsection 272-85(5C) of Schedule 2F to the ITAA 1936 (subsection 272-85(5A) of Schedule 2F to the ITAA 1936).
This does not apply in the facts disclosed above.
Furthermore, it is taken to be revoked where the FTE of the trust (to which the IEE of the company relates) is revoked pursuant to subsection 272-85(5B) of Schedule 2F to the ITAA 1936.
(A trustee of a discretionary trust can only revoke an FTE where:
The trustee of the trust with the FTE did not revoke the FTE therefore the requirements of subsection 272-85(5B) of Schedule 2F to the ITAA 1936 are not met.
As the requirements for revocation have not been satisfied, the IEE for the company remains in force at all times after its commencement time and will continue to remain in force after the trust with the FTE has vested.
A family trust distribution tax liability will arise where the company makes a distribution outside the family group (see section 271-30 of Schedule 2F to the ITAA 1936).
Date of decision: 11 December 2012Year of income: Year ended 30 June 2012
Legislative References:
Income Tax Assessment Act 1936
Schedule 2F
section 271-30
section 272-80
subsection 272-80(6B)
paragraph 272-80(6A)(a)
paragraph 272-80(6A)(b)
paragraph 272-80(6A)(c)
subsection 272-85(1)
subsection 272-85(5B)
subsection 272-85(5C)
paragraph 272-85(6A)(a)
Keywords
Family trust distribution tax
Family trust election
Family trusts
Interposed entity election
Trust loss tests
Date reviewed: 17 April 2018
ISSN: 1445-2782