Family Trust Elections

Tax law amendments during 2007 increased the flexibility of family trusts. Two of those measures are to be reversed: the meaning of family and the test individual one-off variation.

Following discussions with Treasury, we have further clarification of the new definition of family for family trust purposes. While not yet enacted but effective 1 July 2008, the current Government intend to reverse this definition to limit lineal descendents to children and grandchildren of the test individual and the test individual’s spouse. This new definition may well exclude nephews and nieces.

What is more concerning is the inability to change the test individual from 01 July 2007. What if the trustees have resolved to change the test individual? Government is aware that this may impact upon trustees that have already distributed to individuals that now fall outside the family group. Be aware that distributions made outside of the family group may be subject to family trust distributions tax.