The Family Trust Distribution Tax (FTDT) is a tax that can be applied when a trust distributes income or capital to someone outside the specified family group. This tax is imposed at a rate of 47%, which is higher than the top marginal tax rate for individuals.
When preparing year-end resolutions for clients with family trusts, it is crucial to carefully review the trust deed and identify the beneficiaries who are part of the specified family group. If the trust has made a family trust election or an interposed entity election, it is essential to determine who is in the family group to avoid triggering FTDT. This includes being cautious when distributing to other entities.
Non-fixed (discretionary) trusts can be considered part of another trust's family group if they have the same specified individual with an FTE in place or if they are a member of the specified individual's family group through an IEE. Trustees and their advisors need to ensure that all trusts involved in a transaction comply with the relevant legislation to avoid triggering FTDT.
To avoid triggering FTDT, it is crucial to understand who is part of the specified family group and review the trust deed to identify all beneficiaries within that group. It is important to seek professional advice and assistance to ensure compliance with the relevant legislation, as FTDT can have a significant impact on the trust's tax position and its beneficiaries.
In summary, FTDT is a tax that can be imposed when a trust distributes income or capital to someone outside the specified family group. It is essential to carefully consider the trust deed and identify all beneficiaries within the specified family group to avoid triggering FTDT.
Seeking professional advice and assistance can help ensure compliance with the relevant legislation and minimize the impact of FTDT on the trust and its beneficiaries.
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