Issue
Are two family trusts, that have specified the same test individual in their family trust elections, members of the same family group pursuant to section 272-90 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) without making interposed entity elections?
Decision
No, the two family trusts are only members of the family group in respect of the family trust election (FTE) each trust has made. Each family trust must make an interposed entity election (IEE) to become a member of the same family group.
Facts
The trustees of two trusts have each made a family trust election specifying the same test individual pursuant to section 272-80 of Schedule 2F to the ITAA 1936. The elections are in force.
The two family trusts make distributions of income to each other.
Reasons for Decision
If two family trusts, with the same test individual, are to make distributions to each other without being liable for Family Trust Distribution Tax (FTDT), they must be included in the same family group in relation to the conferral or distribution.
The specified individual's family group is defined in section 272-90 of Schedule 2F to the ITAA 1936, and subsection 272-90(3) includes the trust in respect of which the FTE was made. Subsection 272-90(3) of Schedule 2F states: The trust in respect of which the family trust election was made is a member of the primary individual's family group in relation to the conferral or distribution.
However, where a trust which has made a family trust election makes a distribution to another trust, in order for that distribution not to attract FTDT, the trust that receives the distribution will need to have made an interposed entity election in accordance with Subsection 272-90(4) of Schedule 2F to the ITAA 1936.
A trust can also be included in the family group of the primary individual if the primary individual, or one or more members of the primary individual's family, or the trustees of one or more family trusts specifying the primary individual in their FTE's or any combination of the above, have fixed entitlements directly or indirectly, and for their own benefit, to all the income and capital of the trust (subsection 272-90(5) of Schedule 2F to the ITAA 1936).