Interposed Entity Elections: trust in respect of which the relevant Family Trust Election was made ceases to exist

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.