I have a client who has a discretionary family trust that owns a large share portfolio that generates fully franked dividends each year.
No Family Tax Election (FTE) has been prepared or lodged. The two beneficiaries are husband and wife.
Since the 2011 financial year, I have allocated $50000 of fully franked income to their wife.
The ATO has issued Notices of Assessment each year, allowing the franking credits in full with no queries.
I just recently became aware that the franking credits above the $5000 exemption may not be claimed unless there is an FTE in place.
I intend to lodge the due 20/21 wife’s income tax return soon in the same way as in earlier years.
Can you explain the tax position here for me and what options I have from now on to deal with this matter?
Can I prepare the FTE dated 2 July 2011 (for the 10/11 and subsequent financial years) and merely file it with the work papers and Permanent Document File and not lodge it with the 20/21 coming tax return? Or should I lodge it in the 20/21 next to be lodged trust estate tax return? (I do not want to alert the ATO to a problem if possible?)
Answer
As long as distributions have been in the “family group,” it may not be the problem you think.
It would appear that only the husband and wife may have been the only beneficiaries – if this is the case, you can still make an effective FTE.
The income year specified in the FTE must have ended before the FTE is made. An FTE can only be made if the trust passes the family control test at the end of the specified income year.
The FTE can specify an earlier income year from when the election is to commence, provided that from the beginning of the specified income year until 30 June of the income year immediately preceding that in which the election is made, both:
- The trust passes the family control test.
- Any conferrals of present entitlement to income or capital during the period, or actual distributions of such amounts, have been made to the specified individual or members of their family group.