Private ruling: Whether a family group can add a trust via an interposed entity election
Date of advice: 25 May 2016
Published: June 2016
Ruling period: Year ended 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the X Family Trust be entitled to add the deceased estate as an interposed entity under section 272-85 of Schedule 2F to the Income Tax Assessment Act 1936 for the 2014-15 & 2015-16 financial years so it becomes part of the family group? | A1: Yes

Relevant facts and circumstances: The trust is an investment trust which has operated for many years. A proprietary limited company is the corporate trustee of the trust. The investment trust lodged a family trust election and it has not been revoked. A person (primary individual) was nominated as the individual whose family group is to be taken into account in relation to the election. The two primary beneficiaries of the trust are the primary individual and their spouse. The spouse has passed away. The trustee of the trust now intends to distribute profits from the investment trust to the deceased estate of the spouse. A trust distribution minute was executed. In the past profits from the trust were distributed equally (50/50) between the primary individual and their spouse. An Interposed Entity Election for the estate will be lodged with the relevant income tax return. The estate passed the family control test in the relevant years.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 272-85 to Schedule 2F | Income Tax Assessment Act 1936 Section 272-87 to Schedule 2F Further issues or you to consider | This private ruling states that the estate can be added to the family group and distributions can be made from the trust to the estate without incurring family trust distribution tax. To take effect, an interposed entity election form must be lodged in writing and in the approved form. It must also contain such information as the Commissioner requires.

Reasons for decision: Summary: Subsection 272-85(1) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) states in part when a trustee has made a family trust election, a trustee of any other trust can make an interposed entity election to be included in the family group of the individual specified in the family trust election. An interposed entity election must be made in writing and in the approved form and must contain such information as the Commissioner requires. Subsection 272-85(4) of Sch 2F to the ITAA 1936 in part states the trust must pass the family control test at the end of the income year. As the family control test has been met, once a correct interposed entity election form is submitted the estate can be added to the family group for purposes of distribution from the trust in order to not be liable for family trust distribution tax.