ATO ID 2004/162: Trusts: liability for Family Trust Distribution Tax
Date of decision: 30 May 2003
Year of income: Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is the trustee of a family trust liable for Family Trust Distribution Tax (FTDT) pursuant to section 271-15 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) on a payment made in respect of the redemption of units, where the amount paid exceeds the value of any consideration given in return?

Decision
Yes. The trustee of a family trust is liable for FTDT pursuant to Division 271 of Schedule 2F to the ITAA 1936 to the extent that the payment made in respect of the redemption exceeds the value of any consideration given in return.

Facts
The trust is a unit trust. The trustee of the trust has made a Family Trust Election (FTE) which is in force. One of the unit holders is a superannuation fund. The superannuation fund has not made an interposed entity election. The superannuation fund is not a member of the family group of the individual specified in the FTE of the unit trust pursuant to subsection 272-90(5) of Schedule 2F to the ITAA 1936. The trustee of the unit trust redeemed all the units held by the superannuation fund, at a value which exceeds the market value of the units at the time of redemption. The payment is not a distribution under section 272-45 of Schedule 2F to the ITAA 1936. The payment is a distribution of capital.

Reasons for decision
Summary: The redemption of units in a unit trust would be a distribution pursuant to subsection 272-60(1) of Schedule 2F to the ITAA 1936. Section 272-60 gives an extended meaning of distributions of income and capital. 272-60(1) [Entity not covered] A company, partnership or trust (an entity) also distributes income or capital to a person in circumstances not covered by section 272-45, 272-50 or 272-55 if it: (a) pays (including by way of a loan) or credits money of the entity to the person, or reinvests such money for the person; or (b) transfers property of the entity to, or allows use of property of the entity by, the person; or (c) deals with money or property of the entity for or on behalf of the person or as the person directs; or (d) applies money or property of the entity for the benefit of the person; or (e) extinguishes, forgives, releases or waives a debt or other liability owed by the person to the entity. Subsection 272-60(2) of Schedule 2F to the ITAA 1936 limits the amount of the distribution on which FTDT is liable to be paid, to the amount that exceeds the amount or value of any consideration given in return. In this case the market value of the units at the time of the redemption is the amount regarded as being the value of any consideration. The distribution, on which FTDT is liable, is the amount by which the amount paid for the redemption of the units exceeds the market value of those units. Where the distribution is equal to or less than the market value of the units, there is no FTDT payable by the trustee of the trust on the distribution to the superannuation fund in relation to that redemption of units.

Legislative references: Income Tax Assessment Act 1936 Schedule 2F, section 271-15 Schedule 2F, section 272-45 Schedule 2F, section 272-60 Schedule 2F, subsection 272-60(1) Schedule 2F, subsection 272-60(2) Schedule 2F, subsection 272-90(5)
Subject references: Family trusts Trust losses Unit trusts Superannuation funds Interposed entity election Family trust distribution tax Family trust election