Written

For

The

Australian

-

The

tax

office

has

put

the

spotlight

on

family

trusts

Is your family trust a ticking tax time bomb? If you haven't reviewed the deed in a few years, the answer may well be yes.

The ATO has just issued fresh guidance on family trusts, and while the message is refreshingly simple — get the basics right — the reality is anything but. Family trust law in Australia is a labyrinth, and even well-intentioned trustees are tripping up on the fundamentals.

The most common mistake I see, and one the ATO has zeroed in on, is trustees making decisions that aren't actually authorised by their own trust deed. The deed is the rule book. If it says resolutions must be in writing, then a verbal nod at the kitchen table won't cut it. Deeds also date quickly — tax law evolves, family circumstances change, and what was compliant a decade ago may not be today.

The 30 June deadline for trustee resolutions is another trap. Miss it, and the trustee cops the lot at 45 per cent. That's a brutal outcome for what is often just an admin oversight. This is why having a default beneficiary clause in your deed matters — it's a safety net when things go sideways.

Distribution strategies also need a rethink. Splitting income between spouses still works well, but distributing to minors is largely dead — the tax-free threshold for kids is a measly $416, and go over it and you're looking at penalty rates up to 66 per cent. Adult children over 18 remain useful, and bucket companies continue to play a role as beneficiaries of last resort, capping tax at 25 to 30 per cent.

But as BDO's Mark Molesworth points out, even working out which company tax rate applies can require half a day of training. That's the Australian tax system in a nutshell — complexity dumped on those least equipped to handle it.

My advice? Don't DIY this. Engage expert accounting and legal support. The cost of getting it wrong dwarfs the cost of getting it right.