Chartered Accountants Australia and New Zealand (CA ANZ) has called on Treasury to urgently address critical issues with the family trust election (FTE) and family trust distribution tax (FTDT) provisions in Schedule 2F of the Income Tax Assessment Act 1936. Members advising private groups and family businesses report that the current rules are causing significant compliance challenges and existential risks for taxpayers and their advisers.

Key issues include:

• Lost or invalid elections: Changes in tax agents, poor ATO systems and inconsistent record-keeping have led to lost, multiple, or invalid elections, exposing trusts to unexpected liabilities.
• Unlimited review period: FTDT liabilities can arise decades after a triggering event, with disproportionate penalties and general interest charges (GIC) that threaten the viability of businesses.
• Inflexibility: Current rules do not allow elections to be revoked or varied after limited timeframes, even when errors are discovered.
• No Commissioner’s discretion: FTDT applies automatically, even for inadvertent breaches, with penalties often out of proportion to the actual “mischief” involved.
• Outdated definitions: The definitions of “family group” and “family control” do not reflect modern family structures, leading to unintended tax consequences.
• Complex compliance: Multiple elections within family groups increase red tape and the risk of errors.

CA ANZ proposes targeted reforms, including:

• A one-off opportunity for trustees to revoke or vary FTEs and interposed entity elections (IEEs) outside the current 4-year limit, especially where historical compliance can be demonstrated.
• Introducing a 4-year amendment period for FTDT liability to improve certainty and fairness.
• Providing the Commissioner with discretion to disregard or reduce FTDT for inadvertent breaches where the benefit remains within the economic family group.
• Broadening the definitions of “family group” and “family control” to accommodate contemporary family structures and intergenerational transitions.
• Permitting automatic revocation of elections upon sale to third parties.

These reforms are essential to restore fairness, reduce compliance burdens, and ensure the FTE and FTDT provisions keep pace with the realities of modern family enterprises. CA ANZ looks forward to further engagement with Treasury on these issues.

“These targeted reforms are essential to urgently restore fairness, reduce compliance burdens, and remove existential threats for businesses and advisers.”