Family Trust: Excluded Entities

Tax

Question :

The Wong Family Trust, Helen is the ‘test individual’, wishes to make distribution to the following excluded entity/person: 

1. Wong Pty Ltd: A company which is 50% owned by Helen and 50% by Rachel (Helen’s cousin) 

2. Her cousin: Rachel 

How can distribution be made to them by the trust without attracting family trust distribution tax?

 

Answer :

To avoid family trust distribution tax on distributions made to Wong Pty Ltd. An interposed entity election would be required. An interposed entity election only applies to elections made by companies, trusts or partnerships and not to natural persons (ITAA36 Sch 2F s 272-85(1)). Therefore, Wong Pty Ltd can make an interposed entity election. 

However, an election is not available for Rachel, and therefore any distribution to her will be subject to family trust distribution tax. 

Note: A company or partnership that proposes to make an IEE needs to pass the Family Control Test.  

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