Family Trust Elections in Australia: What They Are and When to Make One

A family trust election, or FTE, is a formal choice a trustee lodges with the Australian Taxation Office (ATO) that identifies a discretionary trust as a family trust for a specified family group. It unlocks valuable tax concessions, including the ability to pass on franking credits and carry forward trust losses, but it comes with a hard boundary: any distribution outside the defined family group is taxed at 47%. Getting the election right, and knowing when not to make one, is one of the more consequential decisions in running a trust.

This guide explains what an FTE does, who the family group is, when you should and should not lodge one, how the form works, the errors the ATO is actively pursuing, and the changes coming for trusts in the years ahead.

What a Family Trust Election Does

Making an FTE gives a discretionary trust access to concessions it cannot reliably use otherwise. The three that matter most:

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  It lets the trust pass on franking credits. Without an FTE, a trust that receives franked dividends may fail the holding period rule and be unable to stream those franking credits to beneficiaries. With an FTE, the trust is treated as a single entity for that test, so the credits flow through.
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  It preserves carry-forward trust losses. An FTE replaces the more onerous trust loss tests (the control test, the same business test and the income injection test) with a single family control test. This makes it far easier to keep using tax losses if the trust's circumstances change.
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  It simplifies company loss ownership tests and reporting. Where the trust is a major shareholder in a company with losses, an FTE lets the trust be treated as a single entity, simplifying the company's ownership tests. Trusts with an FTE are also excluded from the trustee beneficiary reporting rules.

The Family Group and the Specified Individual

An FTE names one person as the specified individual (also called the test individual). Everything then flows from that choice, because the family group is defined by reference to that person. The specified individual must have sufficient control over the trust for the election to be valid, so this is not a nominal choice.

The family group generally includes the specified individual's spouse, their children and grandchildren, their parents, their siblings, nieces and nephews, and the spouses of those relatives, along with certain entities the family controls and trusts that have made an interposed entity election into the group. Distributions can be made freely within this group. Anyone or anything outside it is an outsider for tax purposes.

Family Trust Elections and Franking Credits

The franking credit benefit is the most common reason a trust makes an FTE. To pass franking credits from franked dividends through to beneficiaries, both the trust and the beneficiary generally need to satisfy the holding period rule, holding the shares at risk for at least 45 continuous days (90 days for certain preference shares). A discretionary trust with a wide beneficiary class struggles to satisfy this. An FTE resolves it by treating the family trust as a single entity for the rule.

Family Trust Distribution Tax: The 47% Trap

The concessions come with a strict condition. Once an FTE is in effect, every distribution of trust income or capital must stay within the family group. If the trustee distributes to an outsider, or an outsider becomes presently entitled by default, the trustee must pay the Family Trust Distribution Tax (FTDT).

General interest charge (GIC) accrues on unpaid FTDT and can, over time, exceed the original liability. Note a recent change: from 1 July 2025, GIC on FTDT is no longer tax-deductible, so the cost of an unnoticed liability is now higher than in earlier years.

The FTDT Amnesty: 31 December 2026 Deadline

The ATO is running a remission window for trustees who identify a historical FTDT issue and come forward before it is reviewed. Where a trustee proactively self-reviews their FTDT position, lodges the family trust distribution tax payment advice (form NAT 6175), and does so before any ATO review begins, an 80% remission of the GIC can be approved. The window closes on 31 December 2026.

When You Should Make a Family Trust Election

An FTE is worth making when the benefit is real, and the family group restriction is not a problem. Consider one when:

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  The trust holds shares that pay franked dividends, and the franking credits exceed the $5,000 small shareholder threshold.
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  The trust has or expects tax losses and needs to preserve them without failing the standard trust loss tests.
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  The trust owns a stake in a company with losses, and you want to simplify that company's continuity of ownership tests.
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  Distributions will realistically stay within the family group for the foreseeable life of the trust.

When to think twice

Hold off if the trust may need to distribute to someone outside the family group, such as an unrelated business partner, a friend, or a company not controlled by the family. Because the election is generally irrevocable and the 47% FTDT is unforgiving, an FTE made for a short-term franking benefit can become a long-term constraint. The election should be based on a clear reason, not be lodged as a routine default.

How to Make a Family Trust Election

The election is made on the ATO's family trust election, revocation or variation form and is usually lodged with the trust's tax return for the year the election first takes effect. The core steps:

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  Confirm the trust passes the family control test for the specified individual you intend to name.
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  Choose the specified individual whose family group best fits the intended beneficiaries.
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  Complete the family trust election form and nominate the income year from which the election takes effect.
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  Lodge it with the trust tax return for that year, keeping the signed election with the trust records.

The Interposed Entity Election (IEE)

A related election, the interposed entity election, brings a company, partnership, or other trust into the family group so that distributions can flow to it without triggering FTDT. An IEE is common where the family structure includes a corporate beneficiary or a second trust. It follows the same family group as the FTE and is lodged on the same form style. If your structure includes a company registered as a corporate trustee or beneficiary, an IEE is often necessary to ensure the distributions are correct.

How to Check a Trust's Family Trust Election Status

If you have taken over a trust or are unsure whether an election was ever made, you can confirm the position rather than guess. The trust's prior tax returns will show whether an FTE was lodged, the income year it took effect, and whether the specified individual is recorded on the election. Your registered tax agent can also confirm the status through the ATO's online services for agents. Because the consequences of getting this wrong are a 47% tax, checking before you distribute is always worthwhile, particularly for a trust you did not set up yourself.

Common Family Trust Election Errors the ATO Targets

Trust compliance is a standing ATO focus, and its data-matching now flags distribution patterns that suggest a problem. The errors that most often cause trouble:

Changes Ahead for Family Trusts

Two developments are worth planning for, though neither changes the current year's position:

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  A 30% minimum tax on trust income from 1 July 2028. The 2026-27 Federal Budget announced a 30% minimum tax at the trustee level on discretionary trust income, with no grandfathering, so existing family trusts are captured the same way as new ones. Beneficiaries are expected to receive a non-refundable credit, meaning those below the 30% rate may lose the excess. This moves the effective floor on family-group distributions and is worth modelling before it starts.
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  Continued ATO enforcement. The FTDT amnesty, the removal of GIC deductibility, and ongoing Section 100A activity all point to sustained scrutiny of trust distributions. Clean records and correct elections are the best protection.

For the broader strategy of how a trust fits your affairs, our business advisory services in Adelaide and wealth management services in Adelaide consider structure, succession, and long-term tax planning together.

How The Kalculators Can Help

We advise on whether a family trust election is right for your trust, choose the specified individual and map the family group, lodge the FTE and any interposed-entity election correctly, and prepare the family trust tax return each year so that distributions stay within the group. If you are setting up a new trust, our trust registration service handles both the deed and the election. And if you are worried about a past distribution, we can review your trust's history before the 31 December 2026 amnesty deadline.