This is part 4 of our series of articles on key issues relating to family trust elections (FTEs) and interposed entity elections (IEEs). In this article, we outline the imposition of family trust distribution tax (FTDT) and the general interest charge (GIC).
Broadly, distributions made outside of the relevant family group by an entity that has made an election can give rise to FTDT of 47% on the amount or value of the distribution of income or capital. Late payments in relation to FTDT are also subject to GIC. In some cases, the GIC liability alone far exceeds the amount of FTDT and the net assets of the relevant family group. Thus, it is important that timely action is taken to address any potential FTDT liabilities as soon as possible, particularly as a substantial remission may be available prior to 31 December 2026.
Parts 1, 2 and 3 of this series are available under the ‘Related Articles’ heading below and provide a general overview of FTEs, IEEs and distributions respectively.
References to legislation are references to Schedule 2F of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) unless stated otherwise.
For our recent webinar on FTEs and IEEs, click here.
FTDT — Overview
FTDT is assessed at the highest marginal tax rate of 47% and is imposed on the amount or value of the relevant income or capital of the distribution. Thus, if someone contributed $1 million of after tax money to a family trust and that was subsequently paid to someone outside the relevant family group, that $1 million would be subject to 47% tax.
Individual trustees of family trusts are jointly and severally liable for FTDT under s 271-10(2)(a). Where the trustee of the trust is a company, the trustee along with the directors (at the time of the conferral/distribution) are jointly and severally liable for FTDT under s 271-10(2)(b) (subject to very limited exclusions).
Generally, FTDT is payable 21 days after the relevant distribution is made under s 271-75(1)(b). However, if the distribution occurred prior to the election, FTDT is payable 21 days after the day the election was made under s 271-75(1)(a).
Importantly, FTDT liability is not impacted by a notice of liability being issued by the Commissioner under s 271-90(3). This means that FTDT is payable 21 days after the distribution occurs, regardless of when the distribution is first identified as being made outside the relevant family group. Late payments are also subject to GIC after 60 days from when FTDT becomes payable (ie, 81 days from the relevant distribution).
The unlimited review period
FTDT is not subject to the usual 2 or 4 year amended assessment periods contained in s 170 of the ITAA 1936 in respect of income tax assessments (although the ATO may amend an assessment beyond the usual 2-year or 4-year periods in the case of fraud or evasion).
The Commissioner’s view is that he does not have discretion to waive or overlook the collection of FTDT and there is no time limitation that applies to distributions made outside the family group tracing back to when the FTE provisions were first introduced from 1 July 1995. Naturally, this can give rise to significant amounts of FTDT and the GIC liability can be substantial.
The CPA estimate that $400,000 of FTDT in 2004 could give rise to a total liability of $5 million in mid-2025 (ie, a massive 1,250% increase in 21 years).[1] In one ATO example, a GIC liability of over $21.2 million accrued over a 21-year period on an FTDT liability of $20.2 million. As noted above the GIC liability can far exceed the amount of FTDT, and FTDT and GIC together can wipeout entire generations of accumulated wealth, such as in the ATO example that related to a family involved in a bus business.[2]
However, FTDT amounts are subject to a modified formula for the purposes of determining a reduction in the assessable income of the recipient as set out in s 271-105. Broadly, once FTDT is paid, any distributed amount that is subject to FTDT that has previously been subject to income tax (eg, where a beneficiary has paid tax on a distribution of $1,000 that is subject to FTDT), the prior distributed amount should be tax free and an amendment of the prior income tax assessment for that taxpayer can be made even if this falls outside the usual 4-year amendment period to amend a notice of assessment.
GIC remission
The ATO’s approach to GIC remission is outlined in PS LA 2011/12 and further guidance specifically in relation to FTDT was released on 28 August 2025 via the ATO website (QC 105462). Broadly, the ATO may remit GIC in certain circumstances where an appropriate submission is lodged. Generally, this is where reasonable pro-active steps have been taken to identify and to mitigate any FTDT liability prior to any audit activity being initiated by the ATO.
Importantly, the ATO has announced that a maximum potential remission of up to 80% of GIC is available up to 31 December 2026. The ATO also issued a media release on 26 February 2026 that reiterated that it will look favourably on GIC remission requests in certain circumstances up to 31 December 2026 (QC 106187).
Conclusion
Trustees and their advisers should proactively review any past trust distributions for potential FTDT exposures prior to the matter progressing to an ATO audit or an FTDT notice being issued. Given that the limited time frame for applying for a GIC remission request, timely action should be taken to obtain advice and decide whether a voluntary disclosure should be made.
Naturally, DBA Lawyers would be pleased to assist. We offer a wide range of trust advice and related services, which can be viewed at the following webpage: https://www.dbalawyers.com.au/trusts-advice/.
Related articles
- Family trust elections – one choice, lasting consequences – Part 1
- Family trust elections — interposed entity elections and revocations — Part 2
- Family trust elections — Distributions — Part 3
- ATO checklist for trust distributions
- Why should you order trusts from DBA Lawyers?
- Family trusts –– managing unpaid present entitlements
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Daniel Butler, Director ([email protected]) and Fraser Stead, Lawyer ([email protected]).
DBA LAWYERS
13 March 2026
[1] Submission on Amendments to Family Trust Election provisions, CPA, 16 July 2025.
[2] FTE seminar notes by Amy James-Velagic and Karen Rooke presented at the NSW Tax Forum, The Tax Institute, May 2025.
