Is the ATO cracking down on trusts?
Asked by: scraper | Last update: September 24, 2026Score: 0/5 (0 votes)
Yes, the Australian Taxation Office (ATO) has implemented an ongoing and major crackdown on family trusts, specifically targeting artificial income splitting and aggressive tax avoidance.
What is the ATO crackdown on family trusts?
The crackdown has resulted in the ATO undertaking extensive audits of family trusts and historical distributions, and the issue of hefty Family Trust Distributions Tax (FTD Tax) assessments for noncompliance – being a 47% tax (plus Medicare levy) along with General Interest Charges (GIC) on any historical liabilities.
What is the 5% rule for trusts?
The 5 by 5 rule allows a beneficiary of a trust to withdraw up to $5,000 or 5% of the trust's total value per year, whichever amount is greater. This withdrawal can occur without the amount being considered a taxable distribution or inclusion in the beneficiary's estate, which can have significant tax advantages.
What is the ATO cracking down on?
The ATO says work-related deductions and expenses will be under the microscope, as well as omitted income — areas it says taxpayers are most likely to make errors. It says all sources of income, including that made through interest, rental income, side hustles and cash jobs, must be declared.
What taxes do trusts avoid?
The most common tax planning objective for a trust is to minimize estate taxes. Because of the large estate tax exemptions, this tax planning benefits very wealthy individuals. Assets may be transferred by a gift during lifetime or left in an estate through a will or trust.
ATO trust crackdown & managing drawdowns in volatility
What is the 7 year rule for trusts?
If you die within 7 years of making a transfer into a trust your estate will have to pay Inheritance Tax at the full amount of 40%. This is instead of the reduced amount of 20% which is payable when the payment is made during your lifetime.
What is the downside of having a trust?
Trusts are powerful estate planning tools, but they come with distinct trade-offs. The primary downsides are higher upfront costs, the ongoing administrative burden of transferring assets, limited asset protection with revocable trusts, and potential tax complexities.
What is the ATO crackdown for 2026?
ATO Crackdown on Work-Related Expense Claims
For 2026, the ATO is closely monitoring: Overclaimed deductions. Expenses not directly related to income earning. Claims lacking proper documentation.
What is ATO targeting this year?
We're focused on ensuring crypto asset transactions are reported correctly. Our specific focus areas include: crypto asset investors omitting or incorrectly reporting capital gains or losses from crypto transactions. crypto asset businesses omitting or incorrectly reporting income and expenses.
What tax cuts are coming?
Following the passage of the "One Big Beautiful Bill Act" (OBBBA), 2026 tax law changes center on making 2017 TCJA provisions permanent, introducing new targeted deductions, and increasing the Child Tax Credit, with the average filer expected to see a $2,300–$2,900 tax cut in 2026. Key benefits include higher standard deductions, a $6,000/$12,000 senior tax deduction, and no taxes on tips or overtime.
What does Suze Orman say about trusts?
Suze Orman considers a revocable living trust to be a vital estate planning document that "everyone needs," regardless of wealth. Unlike wills, trusts bypass the costly, public, and time-consuming probate process. They provide an incapacity clause so loved ones can manage your finances and health care decisions without court intervention.
When you inherit money from a trust, is it taxable?
Inheriting money or assets from a trust is not generally subject to federal income tax as long as the distribution comes from the original principal. However, you may be required to pay taxes in specific situations:
What should be left out of a trust?
Avoid putting retirement accounts, HSAs, life insurance policies, vehicles, and UGMA/UTMA accounts directly into a living trust. Doing so can trigger heavy tax penalties, disqualify tax-advantaged accounts, or expose trust assets to liability lawsuits. Instead, simply name your intended beneficiaries directly on those specific accounts.
What is the biggest mistake parents make when setting up a trust fund?
The biggest mistake parents make when setting up a trust fund is appointing the wrong trustee. While it is natural to default to a close relative or friend, choosing someone who lacks financial expertise, emotional discipline, or long-term availability can lead to family disputes and the rapid mismanagement of funds.
Do you pay tax on a family trust in Australia?
Although the trustee is legally required to pay Family Trust Distributions Tax (FTDT), the amount received by the beneficiary is treated as non‑assessable, non‑exempt income, i.e. non-taxable. In some cases, this can result in a tax‑neutral outcome. However, this is not always the case.
Can my wife take half of my trust?
If a trust is 'nuptial' then the court can consider it as part of the matrimonial pot that is to be divided between spouses.
What gets flagged by ATO?
Income discrepancies, overclaimed deductions, BAS-to-tax-return variances, and unpaid superannuation are among the most common triggers that flag businesses for ATO audit selection.
What are the three golden rules of ATO?
To claim a deduction for work-related expenses, you must meet the 3 golden rules: You must have spent the money and you weren't reimbursed. The expense must directly relate to earning your income. You must keep records that show you incur the expense (usually a receipt).
What will trigger an ATO audit?
ATO audit triggers explained: ATO reviews are commonly triggered by missing or under-reported income, unusually high or unsupported deductions, results that differ from industry benchmarks, and income that appears inconsistent with assets or lifestyle. Accurate reporting and proper records reduce the risk of review.
Can I give my son a gift of $100,000 without paying any taxes on it?
At a glance:
You don't have to report gifts to the IRS unless the amount exceeds $19,000 in 2025. Any gifts exceeding $19,000 in a year must be reported and contribute to your lifetime exclusion amount. You can gift up to $13.99 million over your lifetime without paying a gift tax on it (as of 2025).
What are the new tax changes for 2026?
Key tax changes for 2026 feature higher standard deductions ($32,200 for married couples; $16,100 for single filers) and increased marginal income tax brackets. Additionally, new deductions take effect for eligible overtime and tipped income, while the Child Tax Credit increases to $2,200 and the SALT cap jumps to $40,400.
What is the income tax slab for senior citizens above 60 years?
The Income Tax Act 1961, offers a higher basic exemption limit to senior citizens under the Old Tax Regime. While Senior Citizens between 60 to 80 years enjoy a basic exemption limit of Rs. 3 lakhs, super senior citizens above 80 years of age enjoy Rs. 5 lakhs basic exemption limit.
Does Dave Ramsey recommend a will or trust?
Dave Ramsey recommends a will over a living trust for the vast majority of people. He views trusts as unnecessarily complex and expensive for most individuals, though he acknowledges they can be beneficial for those with large, complicated estates or specific family situations.
What is the 5 year rule on trusts?
A Five-Year Trust, also known as a “Legacy Trust” or “Medicaid Asset Protection Trust,” can be established to protect assets from being spent down on long term care in a nursing home. The assets you place in the Legacy Trust will become exempt from the Medicaid spend down requirements after a 5 year look back period.
What are the six worst assets to inherit?
Thank You, Next– 5 of the Worst Assets to Inherit
- Timeshares. Do your parents own a timeshare? ...
- Vacation properties. Vacation properties can create the perfect storm for family infighting. ...
- Guns. ...
- Collectibles. ...
- Physical property with sentimental value.