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Is an interposed entity election (IEE) still 'in force' if the trust in respect of which the relevant family trust election (FTE) was made ceases to exist?

Yes. Subsection 272-85(5) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) provides that an IEE is irrevocable.

The Discretionary Trust (D Trust) had a valid FTE in force just prior to the trust being vested.

Interposed Company (Inter Coy) had made an IEE which was in force so that it was a member of the family group of the primary individual specified in the FTE made by D Trust.

Subsection 272-85(5) of Schedule 2F to the ITAA 1936 provides that an IEE is irrevocable. Therefore, the IEE made by Inter Coy will remain in force even though the D Trust has ceased to exist.

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).

Note that where a family trust is a fixed trust and it revokes its FTE in accordance with subsection 272-80(6) of Schedule 2F to the ITAA 1997, an IEE made in relation to that FTE in accordance with section 272-85 of Schedule 2F to the ITAA 1997 will remain in force.