Family Trust Elections

Jamie Walsh • June 8, 2025

Family Trust Elections – How to avoid the 47% tax rate

If your family trust has made a Family Trust Election, please read this.

Family trusts and discretionary trusts are the same. Either might, or might not, have made a Family Trust Election (which limits the range of beneficiaries to a specific family group)

Typically, trusts distribute income to individual beneficiaries who are on low rates of tax. This is a very common strategy. Trusts also distribute income to “bucket” companies to take advantage of the 30% company tax rate.

Here is how it can go wrong.

The Smith Family Trust has made a Family Trust Election limiting the range of beneficiaries. To manage tax, the trust distributes part of its income to a bucket company Smith Holdings Pty Ltd which is wholly owned by John Smith and his wife and children who, of course, are all within the family group.

This is fine.

John’s daughter sells one of her shares to her new spouse, Peter, for $1, just to “get him involved”. Peter is not in the family group.

The next year the trust makes a distribution of $20,000 to Smith Holdings Pty Ltd. Because the company is no longer 100% owned by family group members, the trust distribution is now treated as going (indirectly) to someone outside the family group. The Smith Family Trust is therefore liable for $9,400 in addition to the $6,000 payable by the company ($20,000 x 30%).

Even though the “outsider” Peter might eventually benefit by a mere handful of dollars, the full Family Trust Distribution Tax of $9,400 will be levied.

Here is why it can go wrong. A Family Trust Election might have been made twenty or more years ago. Family members change and memories dim. Do you even know whether your Trust has made a Family Trust Election? If not, you would be well-advised to find out by 30 June 2025, which is the last date for you to document your proposed distributions for the year ended 30 June 2025.

Trust Distribution Resolutions must be dated no later than 30 June 2025. Otherwise, there could be more really bad news. If there is a default beneficiary in the trust deed, that person might be assessed on 100% of the trust income even though he or she did not receive it. If there is no default beneficiary, the trust itself will pay tax at 47%. If its net income is $100,000 it will pay $47,000 tax.

Trusts have risks and rewards. Please make sure you have the risks covered so you can enjoy the rewards with a peaceful mind.

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Proposed $1,000 work-related deduction

By Jamie Walsh • May 21, 2025

Labor's $1,000 instant tax deduction aims to simplify claiming work-related deductions As promised in its election campaign, the Labor Government may introduce a $1,000 instant tax deduction for work-related expenses from the 2026–27 income year. Simplifying claiming work-related deductions The proposed measure will allow taxpayers to choose to claim a $1,000 instant tax deduction instead of claiming individual work-related expenses. Taxpayers who choose to claim this instant deduction will not be required to collect receipts for deductions less than $1,000 in total. Eligibility To be eligible for the instant tax deduction: a taxpayer must earn labour income for example salaries and wages a taxpayer must not exclusively earn business or investment income. Taxpayers who earn business or investment income may continue to claim their tax deductions in the usual way. Other deductions Charitable donations and other non-work related deductions would continue to be claimed on top of this instant tax deduction. This concession will be welcomed by many workers, but it does not seem to make sense from the Government point of view. If a taxpayer has under $1,000 in deductions, he or she can choose the $1,000 deduction. If the actual deductions are more than $1,000 he or she will naturally claim the higher amount. From the ATO point of view, this seems to be a case of "Heads the taxpayer wins and tails we lose". The concession is not peanuts. it is expected to increase tax refunds by $2.4 billion "over the forward estimates" which is code for the next three years, but as it does not start until 2026-27 tax returns, that appears to translate to $1.4 billion per year. Perhaps we should not get to excited until we see the wording of the actual legislation. Contact Us Have queries? We are here to help you navigate through them, please feel free get in contact with us.