Family trust rules penalise firms for admin errors: CPA Australia
Family trusts, widely used in Australian business and succession planning, are facing calls for updated regulations, with CPA Australia stating that current rules penalise businesses for administrative errors made many years ago rather than reflecting modern practices.
A court dispute over a A$13.2m ($8.58m) tax assessment has reignited debate about Australia’s family trust legislation, with industry representatives warning the rules are out of date and put ordinary businesses at risk of severe penalties for administrative oversights.
The legal battle centres on the Thomas case, which received a family trust distribution tax (FTDT) bill after an error in paperwork from years ago led to the wrong individual being nominated as the family group head.
The case highlights concerns about the rigidity and complexity of family trust election rules, which were introduced in the late 1990s to stop tax loss trafficking.
Under current law, mistakes in trust administration—even those made decades ago—can result in an FTDT charge at a rate of 47%, the highest marginal tax rate.
There is no mechanism for the Australian Taxation Office (ATO) to grant relief, even if there was no intention to avoid tax or any loss to public revenue.
CPA Australia’s Tax Lead Jenny Wong has pointed out that this is not an isolated incident and that many small businesses, including family farms and tradespeople, have faced steep penalties due to inadvertent errors.
One key issue identified by CPA Australia is the lack of flexibility built into the rules.
Family trust elections cannot easily be amended to account for changes across generations, simple errors, or unforeseen events such as the death of a nominated individual.
Moreover, record-keeping limitations within ATO systems can mean that past elections are not always accurately documented or accessible.
CPA Australia has called on the government to update legislation so that genuine errors can be corrected and to allow for limited ATO discretion in applying FTDT in cases where avoidance has not occurred.
While legislative action is seen as essential to address these longstanding problems, the Taxation Ombudsman is currently examining how such cases are handled administratively by authorities.
“Family trust rules penalise firms for admin errors: CPA Australia ” was originally created and published by The Accountant, a GlobalData owned brand.
The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
