Tonight the Rudd Government announced that it will reverse two of the family trust changes introduced by the previous Government in Tax Laws Amendment (2007 Measures No 4) Act 2007 to improve the integrity of the tax system and to achieve cost savings to help fund more urgent priorities.
The Government will change the definition of family in the family trust election rules to limit lineal descendants to children or grandchildren of the test individual or of the test individual's spouse. This change will have effect from 1 July 2008.
The Government will also prevent family trusts from making a once off variation to the test individual specified in a family trust election (other than in relation to a marriage breakdown). This change will have effect from the 2007-08 income year.
Both of these changes reduce the scope for family trusts to utilise tax losses to lower income tax, delivering on the Government's commitment to disciplined budget management.
The Government recognises that some of the amendments introduced in Tax Laws Amendment (2007 Measures No 4) Act 2007 were technical improvements to the Family Trust Election system that enhanced the flexibility of family trusts and addressed problems with the operation of the system. For example, two of the amendments allow variations in the family group that may arise as a consequence of death or marriage breakdown and two other amendments allow family trust elections to be revoked in circumstances where the original elections were not actually required. The Government will therefore retain these amendments made to family trusts in 2007.
Contact: James Cullen - 0409 719 879