Under the Hood: The restrictive family control test

In this episode of Under the Hood, Accountants Daily journalist Carlos Tse is joined by David Montani to unpack the complexities of family trust distribution tax (FTDT), the challenges accountants face when navigating family trust rules, and why reform is needed to address unintended tax liabilities.

Carlos and David discuss the complexities of the family control test, identifying how administrative oversights and misunderstandings can trigger significant tax liabilities, even when there has been no tax mischief. David explains why incomplete historical records, changes in advisers, and gaps in practitioners' understanding of family trust elections can create risks of tripping FTDT. He also discusses the impacts on clients and practitioners' lack of transparency around whether the ATO uses data to identify potential FTDT liabilities and the importance of investigating trust structures and past elections when taking on new clients. They also explore the voluntary disclosure process, the available interest remission for eligible disclosures, and potential reforms to make the rules more flexible and better suited to modern family business structures. Tune in to hear more about: Unintentionally tripping FTDT through failing the family control test. The significant tax risks incurred from incorrect or overlooked family trust elections and interposed entity elections. The importance of diligence in the face of incomplete historical records. The impacts of potential ATO data matching. How accountants should approach advising their clients on voluntary disclosures. The unnecessarily restrictive nature of the current rules surrounding FTDT. Why it is so important to understand the rules.