One of the ATO’s areas of focus for 2025-26 for privately owned and wealthy groups is family trust distributions outside the family group that trigger family trust distributions tax (FTDT). The complex family trust election (FTE) and FTDT provisions are resulting in unexpected FTDT. The ATO is concerned there is a lack of awareness about the compounding nature of FTDT and general interest charge (GIC), which is resulting in significant liabilities.

Administrative relief for past inadvertent distributions

To help alleviate the impact of past inadvertent distributions outside the family group, the ATO is offering an administrative solution until 31 December 2026. Where an electing entity has taken reasonable steps to mitigate the effects of the distribution outside the family group, the ATO may consider it fair and reasonable to remit GIC.

A review has not commenced

The ATO may remit 80% of GIC leaving only 20% remaining where a taxpayer has:

• proactively self-reviewed their FTDT liability 
• lodged the Family trust distribution tax payment advice form (NAT 6175)
• paid the FTDT.

A review has commenced but prior to audit

The ATO may allow partial remission, i.e. less than 80% GIC remission where a taxpayer has:

• made a voluntary disclosure of an FTDT liability during the early stages of a review 
• lodged the Family trust distribution tax payment advice form (NAT 6175)
• paid the FTDT.

The electing entity would need to provide the ATO with a GIC remission request.

The ATO would generally consider it is not fair and reasonable where:

• a risk review identifying FTDT risks has progressed to an audit
• a FTDT notice has been issued to the electing entity
• there is evidence of mischief, tax avoidance, fraud or evasion.

Can the ATO remit inadvertent FTDT?

The ATO has clarified that it has no power to ignore the application of FTDT. Under the current law, there is no discretion to waive FTDT where the taxpayer or adviser claims the FTDT liability arose because of a mistake or there was 'no tax mischief'.

Because FTDT liability automatically arises when a distribution is made outside the family group, the ATO cannot limit their review and collection of FTDT liabilities to the general 2- or 4-year period of review applying to income tax. The ATO is required by law to collect all payable tax liabilities owed to the Commonwealth.

Action for advisers and trustees

As the offer to remit up to 80% GIC on FTDT is only available for a limited time, advisers should review their family trust clients past distributions to see if any distributions have been made inadvertently outside the family group. 

Advisers should confirm the FTE and IEE details for their family trust clients as one of the common traps members have experienced is the discovery of another prior FTE made for a family trust client but with a different specified individual. The ATO has recently fixed the FTE and IEE report in Online Services for Agents so all elections lodged with the ATO in the past should be recorded (previously the report was not revealing all elections lodged with the ATO).

Where the client has a family group structure with multiple generations involved, the risk of distributing to an entity outside the family group is higher due to the complexities involved with the definition of a family group and the family control test (elections have been made invalid due to the failure of the family control test). Advisers should pay close attention to the distribution flows within these family group structures.

Act early to minimise liabilities

If a client faces an unexpected FTDT liability, it is important not to ignore the issue. GIC accrues daily, and there is no limitation period for FTDT liabilities. Where the options to vary or revoke an election, or to make a retrospective election, are not available to rectify the situation, clients should consider the ATO’s administrative solution as soon as possible while they have not been notified by the ATO of a review. Once the ATO has notified an entity of a review, the ATO will only consider less than 80% remission of GIC where it is fair and reasonable.