If you have a family trust that has made a family trust election, there is a time-limited opportunity worth knowing about. The ATO is offering up to an 80% remission of the interest charged where a trust has accidentally distributed income outside its “family group” and triggered family trust distribution tax (FTDT), provided you come forward and fix it before 31 December 2026.
What is family trust distribution tax?
Many trusts make a family trust election to access tax benefits, such as simpler trust loss rules and access to franking credits. The trade-off is that once the election is made, distributing income or capital outside the trust’s defined “family group” triggers family trust distribution tax. FTDT is charged at the top marginal rate plus the Medicare levy (currently 47%) and is paid by the trustee. It is surprisingly easy to trigger by accident, particularly in larger or multi-generational families, or where a distribution reaches a cousin, an in-law, or a company or trust that sits outside the family group.
The relief on offer
The ATO has recognised that many of these breaches are genuine mistakes, and is offering to remit the general interest charge that builds up on unpaid FTDT. One important point to be clear on: the FTDT itself is not waived, only the interest on it. The key features:
- Up to 80% of the interest charge can be remitted if, before any ATO review begins, you self-review your position, lodge the family trust distribution tax payment advice form, and pay the FTDT.
- A smaller remission may be considered if you come forward after a review has started but before an audit.
- Relief is not available where there is evidence of deliberate avoidance, fraud or evasion, or once the ATO has issued a formal FTDT notice.
The deadline: 31 December 2026
This administrative relief window closes on 31 December 2026. After that date, the ATO will not consider remission under this approach, so the value of acting early is real. For a trust that has carried an FTDT liability for some years, the interest can be substantial, and an 80% reduction of it is well worth capturing.
What to do
If your trust has made a family trust election, it is worth reviewing your distributions from recent years to check that none went outside the family group. If one did, coming forward before 31 December 2026 can save a significant amount of interest. Because the family group rules are technical, and getting the disclosure right matters, this is a review best done with your accountant rather than left to chance.
How MS Financial Services can help
We can review your trust’s family trust election and its distributions, identify any FTDT exposure, and help you make a voluntary disclosure in time to access the remission. See our Business Advisory and Tax & Compliance services, or get in touch.
Frequently Asked Questions
What is family trust distribution tax?
It is a tax at the top marginal rate plus Medicare (currently 47%) that applies when a trust that has made a family trust election distributes income or capital outside its defined family group.
Is the ATO waiving the tax?
No. The FTDT itself is still payable. The relief is a remission of up to 80% of the general interest charge on it, available if you come forward before an ATO review begins.
What is the deadline?
31 December 2026. After that, the ATO will not consider remission under this administrative approach.
How do I know if I am affected?
If your trust made a family trust election and has distributed to a person or entity outside its family group, FTDT may have been triggered, often without anyone realising.
What if the ATO has already contacted me?
Remission may be reduced or unavailable once a review is underway, and is not available once a formal FTDT notice has issued, so it is best to act before that point.