Superannuation Fund - liability for Family Trust Distribution Tax on a distribution outside the family group.

If the trustee of the Superannuation Fund makes an interposed entity election and distributes income or capital to a person outside the family group, will the trustee of the Superannuation Fund be liable for Family Trust Distribution Tax under Division 271 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes, the trustee of the Superannuation Fund will be liable for Family Trust Distribution Tax under Division 271 of Schedule 2F to the ITAA 1936, where there is an interposed entity election and a distribution is made outside the family group.

The Superannuation Fund is a complying superannuation fund with only two members, husband and wife.

The Superannuation Fund has made an interposed entity election to be included in the family group of the husband.

Section 271-20 of Schedule 2F to the ITAA 1936 states that there is a liability to tax, Family Trust Distribution Tax, where: (a) The trustee of a trust has made an interposed entity election to be included in a family group of the individual specified in the family trust election (section 272-85 of Schedule 2F to the ITAA 1936); and (b) at any time while that election is in force the trust confers a present entitlement to, or distributes, income or capital of the trust other than to the individual specified in the family trust election or a member of the individual's family group. (Section 272-90 of Schedule 2F to the ITAA 1936 defines 'family group')

If the trustee of the Superannuation Fund makes an interposed entity election and then makes a distribution outside the family group, the trustee will be liable for Family Trust Distribution Tax on that distribution in accordance with section 271-20 of Schedule 2F to the ITAA 1936.