‘Existential risk’: accountants, SMEs need FTE, FTDT reform, professional bodies say

The impacts of family trust elections (FTE) and family trust distribution tax (FTDT) integrity provisions are producing unexpected and disproportionate tax outcomes where there is no tax mischief, CA ANZ, CPA Australia, Institute of Public Accountants, National Tax & Accountants’ Association, and The Tax Institute said in their joint submission to Assistant Treasurer Daniel Mulino (pictured).

The joint bodies have sought an urgent roundtable with the Assistant Treasurer, Treasury, and ATO to “restore fairness, reduce compliance burdens, and address the existential risk the provisions pose”.

“The emergence of FTDT issues across family businesses and private groups is deeply concerning. While taxpayers must meet their obligations, the scale of these issues underscores the urgent need for legislative reform to address the significant impact on affected taxpayers and advisers,” the bodies said in their joint submission.

In the submission, the bodies sought five changes to FTE and FTDT: to remove the unlimited period of review for FTDT liabilities, change the timing of the general interest charge imposition, loosen limitations on varying or revoking elections, manage the application of the rules to companies, and provide more flexibility for the ATO to exercise administrative powers.

“Our overarching concern is that the current regime is unsustainable and poses an existential threat to some businesses and their advisers … The rules designed to prevent trust loss trafficking are causing unexpected and disproportionate tax outcomes for family groups of all sizes.”

“Emerging FTDT liabilities are also placing severe pressure and stress on the accounting profession, increasing litigation risk for historical matters that were unforeseeable at the time,” the bodies added.

“In most cases, these outcomes do not involve tax avoidance or mischief … We wish to consider ways to alleviate the disproportionate tax outcomes for families and businesses without undermining the purpose and intent of the regime.”