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Tax lawyer flags compliance traps with family trusts
Accountants have been warned about family trust issues that can lead to unexpected tax bills for clients, with the ATO scrutinising this area.
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Kristy-Lee Burns, partner at Owen Hodge Lawyers, has outlined some of the misconceptions about family trusts and family trust elections that can have tax consequences for taxpayers in these groups.
The Tax Office recently warned privately owned and wealthy groups that it was seeing an increase in issues with family trust distribution tax due to poor succession planning and inadequate record-keeping practices.
The ATO said it would be looking to target any deliberate tax avoidance undertaken through the use of family trust arrangements.
Based on what she has seen in practice, Burns said the ATO's attention on family trust distribution tax for now seemed focused on high-net-worth taxpayers and the transfer of generational wealth.
“We're seeing the ATO target long standing businesses with structures that have been in place for quite some time and handed down generation to generation,” she said.
“That's not to say that the ATO won't apply their unfettered discretion to do so [in the future].”
“I suspect they're not as interested in the small business taxpayer as much as they are those businesses that have received greater concessional benefits from these arrangements.”
There was also an expectation that these larger private groups could pay for accountants and the right expertise to manage trust distributions and tax appropriately.
Burns said many of the tax issues she was seeing were arising where distributions had been made to third parties who arguably were not a descendant of the test individual.
“Sometimes that's where distributions are made to a corporate entity that might not have necessarily been provided for under the deed. So a lot of the time in our space, we're having to advise people to go and get expert taxation advice on the likelihood that the ATO is going to pursue them,” she said.
If there's a higher risk of the ATO taking action, they then need to obtain further advice on their ability to negotiate a resolution.
“The ATO typically likes to try and resolve the matter by getting money in their hand rather than [going to] the expense and cost of litigation in a federal court,” Burns said.
Often, these types of issues were identified by tax professionals when the taxpayer was already being audited.
“For example, if a business is going through and amending tax returns for a couple of years, the ATO usually wants to investigate why there are so many amendments to tax returns. At that point, it usually starts to get involved in an audit.”
Accountants then need to look carefully at the client's records to determine whether there would be any issues for the ATO to pick up on and whether they should immediately make a disclosure, she said.
One of the most common issues with family trusts, Burns explained, is that people don't understand that the family group is essentially frozen upon the death of the test individual.
“People often assume they can just simply appoint someone new but, unfortunately you're strictly adhered to that test individual's linear line of beneficiaries,” she said.
“What happens is that you're not able to create new members or beneficiaries to give further distributions to and there's a bit of a misunderstanding on that. An example would be spouses of children, they're not automatically eligible to receive distributions in that scenario.”
Burns also stressed the importance of reading the trust deed and ensuring it's compliant.
“Make sure you look into any conflicts as to the definition of beneficiaries because time and time again we see variations to trust deeds but people need to be aware of when that triggers a resettlement where they're varying certain clauses of the trust deed,” she said.
It's also important when setting up a family trust to carefully select what person is going to be elected as the test individual.
“Make sure you look at whether that individual is the right person. If you appoint the wrong person such as someone that doesn't intend on having children that can create some real problems with flexibility,” she said.
The law firm said there should also be meticulous notes on all distributions.
Accountants should also make sure their clients are aware of the intersection of Division 7A taxation laws regarding repayments, schedules and minimum repayments.
“Otherwise, you end up with clients that have all sorts of issues, including lost franking credits.”
Miranda Brownlee
29 May 2025
accountantsdaily.com.au
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Chris Wybenga
B.Bus, CA
Chris is the Managing Director of the Firm who established the practice in August 1994 and has been responsible for its growth and development since that time.
Chris has over 40-years experience in the Chartered Accountancy profession, predominantly spent in small to medium sized firms, advising small and medium sized businesses and individuals in areas such as taxation and accounting as well as business restructuring and superannuation advice.
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- 1980 – Commenced employment and part time university studies
- 1985 – Graduated Bachelor of Business from University of Technology, Sydney
- 1986 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia & New Zealand
- 1994 – Established Wybenga & Partners
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B.Bus, CA
Dianne is responsible for the day-to-day operations and administration of the practice.
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- 1992 – Graduated Bachelor of Business from University of Technology, Sydney
- 1993 – Commenced employment in acounting profession
- 1996 – Commenced career with Wybenga & Partners
- 1997 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia & New Zealand
- 2002 – Appointed as Director of Wybenga & Partners
Roger Potter
B.Bus, CA
Roger has over 40-years in the Chartered Accountancy profession and significant expertise in providing advice and solutions to small and medium sized businesses and high-net-worth individuals. He also has extensive experience in the areas of Self-Managed Superannuation Funds and retirement strategies.
- 1985 – Commenced employment and part time university studies
- 1990 – Graduated Bachelor of Business from University of Technology, Sydney
- 1992 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia & New Zealand
- 1998 – Commenced career with Wybenga & Partners
- 2002 – Appointed as Director of Wybenga & Partners
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B.Sc, M.Com, CA
Tess has been working in Chartered Accounting Firms since 2021 and in this time has had a broad range of experience in superannuation, taxation, business services and financial strategy.
Since 2016, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the financial division of Wybenga Group as a Director of Wybenga Financial.
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As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.
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- 2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
- 2004 – Graduated Masters of Commerce from the University of New South Wales
- 2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia & New Zealand
- 2007 – Promoted to Manager at Wybenga & Partners
- 2012 – Appointed as Associate Director
- 2015 – Awarded a Diploma in Financial Planning
- 2016 – Appointed as Director of Wybenga & Partners Pty Ltd, Wybenga Group Pty Limited and Wybenga Financial Pty Ltd
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B.Bus, B.Sc, CA
Adam has over 18-years experience in Chartered Firms and in this time has had a broad range of experience in superannuation, taxation, and business services. In particular, Adam has had significant experience in MYOB and assisting clients with periodic management reporting.
Adam is responsible for the implementation of technology in the Firm and sourcing new areas of innovation and efficiency.
Adam is active in the development of young accountants and donates considerable time to sharing his expertise.
- 2005 – Commenced employment with Wybenga & Partners and part-time Accountancy Studies
- 2005 – Graduated Bachelor of Science from the University of Western Sydney
- 2007 – Graduated Bachelor of Business from the University of Western Sydney
- 2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia & New Zealand
- 2010 – Promoted to Manager at Wybenga & Partners
- 2012 – Appointed as Associate Director
- 2016 – Appointed as Director of Wybenga & Partners
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Hussein Oubani
B.Bus, CA
Hussein brings over 20 years of experience working in Chartered Accounting Firms, during which he has gained extensive expertise in taxation and business services. He provides advice on various tax issues, including capital gains tax, fringe benefits tax, goods and services tax, and Australia’s tax treaties.
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- 2008 – Commenced employment with Wybenga & Partners and part-time
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- 2012 – Admitted as an Associate Member of the Institute of Chartered Accountants
Australia & New Zealand - 2024 – Appointed as Director of Wybenga & Partners