Does your Trust is in any below context,
Trust receives franked dividends?
Does trust have losses?
Does trust own shares in a company with losses?
Want to distribute from one discretionary trust to another discretionary trust?
Trust is a part of a restructure of small business roll-over and wish to take benefits from small business restructure roll-over?
FTE is a key solution to get advantage from these contexts.
Family Trust Election is a process, by the trustee (fixed or non-fixed), to select a discrete individual as a Primary Individual(PI) or Test Individual(TI) with a view to the relevant legislation. Such nominated Primary Individual defined as the “Test Individual” for the purpose of defining a family group, nominates maximum beneficiaries up to the extent as per Trust deed.
Family Trust Election can only be done in the prescribed form provided by ATO. For the specific year 2017-18, follow the belowmentioned link to get the form,
To opt for the FTE is a beneficial course of action in following the state of affairs-
Frank Dividends
As per ATO, if your(trust’s) total franking Credit does not cross the 5,000 $, then you fall in the small shareholder exemption limit. But contrary to that, if it crosses 5,000 $, in that case, you(trust) must hold the ownership, at risk, continuously for at least 45 days (90 days for certain cases) not counting the day of acquisition and/or disposal, to pass the benefit of franking credit. (applicable in case if credit flows from shares acquired prior to 31 December 1997)
As a non-fixed trust, it won’t be reasonable to identify the ownership of trust as beneficiaries do not hold a specified interest in the trust.
Despite that, a trust has made FTE, and it has passed the 45 days (90 days in certain cases) holding period rule by itself, can pass the franking credit to its beneficiaries.
Trust losses
Following tests needs to be satisfied by Non-fixed trust to retrieve benefit of carry forward loss option –
- 50% stake test
- Control test
- An income Injection test – designed to prevent income being injected into a trust to absorb trust losses
- A pattern of distributions test – compares FY profit distribution with previous 6 years distributions
Despite that, Trust with FTE been done needs to satisfy only income injection test, which is comparatively easier than standard income injection test.
Oblique Remark: if a discretionary trust having profits distributes income to another discretionary trust to resort its losses or deductions, might get failed in income injection test. Whereas, trust (with FTE to be made) can distribute profits to another trust (with FTE to be made) would not get failed in income injection test, considering that both trusts have made FTE choosing the same test individual.
Trust owns shares in a company with losses
Following tests needs to be satisfied by the company to retrieve benefit of claiming and carry forwarding losses again future incomes –
- The continuity of Ownership Test (COT) – 50% of the voting, dividend income & capital rights must be beneficial to the same person all the time
- The same business Test (SBT)
All the time – the test period runs from the start of a loss year up to an end of the income year.
A non-fixed trust would get failed in the continuity of ownership test, whereas it may be possible for a trust who FTE has made.
Distribution from one discretionary Trust to another discretionary Trust
If a trust having profit wants to distribute it to another trust, then, in that case, both trusts must have made FTE choosing the same Test Individual.
Small business restructure roll-over
From 1 July 2016,an eligible small business may be able to restructure its operations in accordance with the requirements to access the small business restructure roll-over provisions. The essential requirement to access the new roll-over is restructure does not make any impact on economic ownership of the individual(s). Non-fixed trust may not be inclined to satisfy the same. Despite this, a trust (with FTE to be made) would be satisfied the requirement.
Above data or example may not be suitable in context to your case. Kindly contact us before making any decision.
Prepared By,
Aman Patel