Why Family Trust Elections in Australia Matter More Than Ever
- Future Accounting
- Oct 23
- 4 min read
Updated: Oct 23
Written by: Chris Mulcahy
The complete guide to family trust elections in Australia
With increased ATO scrutiny on trust compliance, it’s time for trustees to take a closer look at their structures, starting with a Family Trust Election in Australia.
At Future Accounting Group, we’re currently reviewing Family Trust Elections (FTEs) for all client trusts to ensure you’re compliant, eligible for key tax concessions, and protected from costly penalties.
If you have a family trust, this guide will help you understand what an FTE is, whether you need one, and what we’re doing to take care of the process for you.
What is a family trust election in Australia?
A Family Trust Election in Australia is a formal declaration made to the ATO that your trust will operate as a "family trust" for tax purposes. It involves:
Nominating a test individual, and
Distributing income only to members of their defined family group.
Once made, the election remains in place indefinitely unless revoked with the ATO’s approval. While it may sound administrative, this election unlocks important tax advantages and ensures your trust isn’t exposed to unnecessary risk.
Why is the ATO focusing on family trusts in 2025?
The ATO is significantly increasing its review of trust arrangements, particularly around:
Incorrect or missing FTEs and Interposed Entity Elections (IEEs)
Ineligible use of franking credits and prior-year losses
Distributions made to non-family entities without proper elections in place
This renewed compliance focus makes now the ideal time to review your trust’s position and update elections if needed.
Key reasons to make a family trust election
Here are four key scenarios where a Family Trust Election in Australia is either essential or highly recommended:
1. Claiming tax losses or bad debts
Trusts with carried-forward tax losses or bad debts must meet complex rules to use them. A valid FTE allows the trust to apply Family Trust Loss Rules, which are much easier to satisfy.
2. Accessing franking credits
Without an FTE, franking credits attached to dividends received by your trust may be lost, even if the income is distributed to family members. Making a Family Trust Election ensures these credits flow through to beneficiaries correctly.
3. Distributing to companies or other trusts
If your trust distributes income to a bucket company or another trust, an Interposed Entity Election (IEE) is usually required. But you can’t make an IEE unless an FTE has already been made.
4. Avoiding family trust distribution tax (FTDT)
Distributing income to individuals or entities outside your defined family group can trigger FTDT at 47%. An FTE protects you from this penalty by ensuring distributions stay within the approved family group.
Do all trusts need a family trust election?
Not every trust needs to make an FTE, but many do.
You might not need an FTE right now if your trust:
Distributes only to natural persons in your immediate family
Doesn’t carry forward any losses or bad debts
Doesn’t receive franked dividends or distribute to companies or other trusts
However, many trustees choose to make the election proactively, especially if future plans include using company beneficiaries, receiving dividends, or managing capital losses. Making an FTE now can reduce future compliance headaches and provide planning flexibility.
What is an interposed entity election?
An Interposed Entity Election (IEE) is a separate election made by a company or trust that receives income from your family trust.
This election:
Aligns the recipient entity with your family group for tax purposes
Avoids the 47% family trust distribution tax
Can only be made if a valid FTE already exists for the distributing trust
IEEs are commonly required when using bucket companies or related trusts in family structures.
What we’re doing for our clients
At Future Accounting Group, we are:
Reviewing all client trusts to assess whether FTEs and IEEs are needed
Preparing and sending forms for signature where applicable
Lodging elections with the ATO or including them in tax returns, as required
Providing a simple, client-friendly FTE Information Guide with each pack
You don’t need to worry about the technical details — we’re managing it for you.
Future Accounting – The Future Prosperity Process
At Future Accounting Group, we don’t just manage compliance, we partner with families and businesses to build sustainable, long-term success through our Future Prosperity Process.
This process is designed to help you thrive by aligning your health, wealth, and family goals. We take a holistic view of your circumstances, guiding you through facts, challenges, strategies, and decisions to achieve clarity and control.
We understand that strong relationships are the foundation of prosperity. Whether within your family, your business, or with your trusted advisors, maintaining connection and trust leads to confident decision-making and lasting outcomes.
Our role is to help you build financial strategies that do more than just grow wealth. We aim to create frameworks that support continuity, harmony, and shared prosperity across generations — and that includes ensuring your trust structure is both compliant and future-ready.
Closing thoughts
A Family Trust Election in Australia is more than a compliance requirement, it’s a proactive step toward protecting your trust’s tax position, preserving access to key concessions, and laying the groundwork for intergenerational success.
Within our Future Prosperity Process, the FTE plays an important role in strengthening the foundation for wealth creation, risk management, and family alignment.
If your trust hasn't been reviewed recently, or you're uncertain whether the right elections are in place, now is the time to act.
Feel free to contact us to ensure your trust is aligned with your family’s long-term vision.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
