"As the ATO correctly points out in both:
- the questions and answers section of its webpage that deal with FTEs http://www.ato.gov.au/businesses/content.asp?doc=/Content/40272.htm and
- the instructions for its recently released Family trust election, revocation or variation form 2008 http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/00134960.htm
the current law allowing a test individual to be varied is effective from 1 July 2007. This means that distributions can be made within the family group of the new test individual from that date free of any liability to family trust distribution tax (“FTDT”) - provided, of course, that the trustee of the trust notifies the ATO that such a variation has been made when it lodges the tax return for the trust for its 2007/8 income year. In other words, the law as it is currently drafted does not require the ATO to be notified before any distributions are made based on the revised test individual. The only requirement of the current law, i.e. in order to avoid a FTDT liability from arising, is that the variation must be (formally) notified to the ATO in the trust’s tax return for the income year from which the variation is to be effective.
As the Labor Government cannot surely have intended to penalise taxpayers who have acted:
- in accordance with the current law; and
- on the basis of ATO guidance
I would encourage all Taxation Institute members to 'bombard/pester' their nearest ALP representative asking for a revised commencement date for the removal of the ability to make a once-off variation of a test individual."
TAXVINE COMMENT: Members should note that the Taxation Institute has issued a media release critical of this retrospective change to the law- go here