iscoverThe professional body is calling on Treasury to amend the family trust election provisions as the increased litigation risks place considerable pressure on the accounting profession.
FTDT reform required to ‘restore fair balance’, says CPA
22 July 2025
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8 minute read
CPA Australia has voiced concern towards the significant liabilities and risks associated with the family trust election provisions, believing they should be reformed to “restore a fair balance between enforcement and professional accountability”.
In a submission made to Treasury, CPA focused on concerns regarding the current application of tax laws affecting family trusts, specifically family trust elections (FTEs), interposed entity elections (IEEs), and family trust distributions tax (FTDT).
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Jenny Wong, CPA Australia tax lead, said while these provisions were originally introduced to prevent the misuse of trust tax losses, their current implementation was leading to unintended consequences, disproportionately harsh penalties and significant financial distress for many Australian family businesses.
“Australian family businesses are facing significant financial distress due to the current application of tax laws affecting family trusts. What was intended as a deterrent is now imposing disproportionately harsh penalties with unintended consequences,” Wong said.
“The provisions are incredibly complex, leading to historical misunderstandings and the imposition of FTDT due to technical deficiencies, even when distributions remain within the "economic" family group with no mischief involved.”
According to the body, despite the original intent, the Tax Office identified a number of issues with the provisions which resulted in significant FTDT liabilities, yet made clear it was bound to apply the law as written.
The problems were noted to be technical drafting flaws and complexity, self-executing nature of FTDT and lack of commissioner’s discretion as well as an unlimited period of review.
Difficulty in evidencing valid elections, limited opportunities to alter FTEs and disproportionate tax imposition were also added to the list of core issues that contributed to the problems surrounding FTDTs.
Wong said CPA believed that FTDT should serve its original purpose as a deterrent for clear and intended breaches, but the legislative framework must provide appropriate options for inadvertent errors.
“Many taxpayers are struggling to evidence valid Family Trust Elections made decades ago, and there are limited opportunities to alter these elections even for genuine mistakes or unforeseen events.”
“This leads to inadvertent breaches and ongoing liabilities, often for distributions that remain within the 'economic' family group with no mischievous intent.”
“The absence of a statutory limitation period means claims can arise many years after the original event, and professional indemnity insurers may reject claims. This situation discourages professionals from providing tax advice, potentially reducing the availability of advisory services.”
To help combat the liabilities associated with the provisions, the body proposed three reforms to “restore a fair balance” not to change the fundamental object of the provisions.
CPA recommended introducing a statutory time limit on FTDT liabilities by making FTDT subject to assessment by the commissioner and limiting GIC accrual, granting the Commissioner’s discretion to accept elections as valid, limiting the review period, as well as addressing technical deficiencies to ensure the tax is limited to benefits genuinely passing outside the family group and to mitigate double taxation.
Wong said the body acknowledged the ATO’s significant responsibility in administering tax laws and aimed for a “balanced approach” in its proposals, recognising that its interpretations were based on the text of the legislation.
“CPA Australia is calling for urgent reforms to restore a fair balance in the family trust tax framework. We believe FTDT should revert to its original purpose as a deterrent for clear breaches, while providing appropriate options for inadvertent errors.”
“We urge the government to urgently review the operation of the family trust election provisions to ensure that the policy achieves its intended purpose without penalising families for technical errors and to restore certainty to taxpayers and the tax profession.”
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