Family Trust Distribution Tax – General Interest Charge Remission Window
ATO’s focus on trusts
On 28 August 2025, the ATO’s Assistant Commissioner (Private Wealth Division) stated that the ATO was seeing an increase in Family Trust Distribution Tax (FTDT) issues due to inadequate record keeping; succession planning; intergenerational expansion of businesses; and the evolution of private groups.
The ATO states that it has been working to raise the awareness of FTDT applying to historical distributions.
The ATO has now allowed a window (up to 31 December 2026) to disclose any historical FTDT triggering indiscretions and receive a good outcome in relation to the General Interest Charge (GIC).
Family Trust Distribution Tax
Many discretionary trusts have made a Family Trust Election (FTE). The FTE nominates a “test individual” whose family members are treated as permissible beneficiaries for tax purposes.
Certain entities are also part of the family but only where the family members have fixed entitlements to all the income and capital of that entity. Entities can also be covered by way of an interposed entity election.
Trustees often make an FTE to qualify as a “family trust”, so that the trust can use historical and current losses to reduce net income without needing to satisfy the continuity of control and beneficial ownership tests.
Discretionary trusts must also be “family trusts” for their beneficiaries to satisfy the “qualified person” rules and receive imputation benefits attached to franked distributions comprised in the trust’s net income.
Where a trust has made an FTE at any point, distributions outside the defined family group attract FTDT at the top marginal tax rate (45%).
The Commissioner can amend an assessment at any time (without normal amendment period limitations) to include FTDT.
Critically, FTDT applies automatically, meaning that distributions outside the family group are already subject to FTDT, whether or not the trustee (or ATO) is aware of it. Trustees can therefore be made liable for distributions outside the family group made (many) years ago.
The directors of a corporate trustee are jointly and severally liable for FTDT.
The ATO has no power to waive FTDT once it has been triggered. As GIC compounds daily, an historical tax debt can easily snowball into an avalanche by the time it is discovered.
GIC remission window
Unlike the imposition of FTDT, the ATO does have discretion as to whether the GIC can be remitted.
In the case of a trustee’s not paying FTDT due to an inadvertent error, the ATO can remit GIC if the trustee took reasonable steps to mitigate the circumstances and it is “fair and reasonable” to remit the GIC.
The ATO has given some specific guidance on what will be considered “fair and reasonable” in relation to historical FTDT debts which are disclosed before 31 December 2026.
Where the trust has taken reasonable steps to mitigate the effects of those circumstances, the ATO may consider it fair and reasonable to remit GIC by 80% where the trustee has:
(1) self-reviewed their FTDT liability (before a review has commenced);
(2) lodged a FTDT payment advice form;
(3) paid the FTDT; and
(4) provided the ATO with a GIC remission request with sufficient information to allow them to decide that it was fair and reasonable.
If the disclosure comes during the early stages of review (i.e. after the trustee has been notified that the ATO is looking into the matter) the remission will be less than 80%.
In one sense, it is not a true “amnesty” in that the ATO reserves the right to remit or not on a case by case basis.
In saying that, provided the trustee makes the disclosure before an ATO review starts and it can be demonstrated that failure to pay FTDT was a genuine error, taxpayers can reasonably expect 80% remission of interest.
The 31 December 2026 deadline suggests that remission will become significantly more difficult from 1 January 2027. Experience with other formal and informal concession regimes for voluntary disclosure of historical liabilities – such as the SGC amnesty, which ended in 2020 – indicates that compliance activity is likely to increase after the concession period closes. Remission requests made after that date can therefore be expected to face a much higher bar, and to succeed only in demonstrably exceptional circumstances.
Act now
If ever there was a time to review trusts for undiscovered FTEs and a hidden FTDT liability – as unpalatable as that may sound – that time is now.
Contact us to discuss issues in relation to FTDT or potential voluntary disclosure.
