ATO Cracks Down on Trusts: What Trustees Must Know in 2026

Hi Chasers,

Family trusts have long been a cornerstone of wealth management in Australia. They help protect assets, manage tax obligations, and efficiently pass wealth between generations. However, the Australian Taxation Office (ATO) is now paying close attention to how trusts are being used — and for good reason.

If you’re a trustee, business owner, or part of a family group using trusts, understanding the current landscape is critical. Small mistakes can lead to significant tax issues, unexpected liabilities, and family disputes — often at the worst possible time.

Why the ATO is Focusing on Trusts

Currently, there are over 947,000 trusts operating in Australia. These structures sit at the centre of many wealth creation strategies, succession plans, family businesses, and investment setups. With such widespread use, complexity and risk are inevitable.

The ATO has been analysing patterns across trusts and identified several areas of concern:

1. Over-claiming deductions – Some trusts reduce their net income with unsupported deductions, often lacking the required receipts for GST claims or refunds.

2. Loss trafficking – Artificial losses are sometimes created or shifted to offset income. While this may look clever on paper, it is a fast track to an audit.

3. Misuse of tax-exempt vehicles – Structures like ancillary funds can be wrongly used to access concessions or private benefits without genuine entitlement.

If any of these scenarios sound familiar, it may be time to review and reset your trust.

Understanding Family Trust Elections (FTEs) and Interposed Entity Elections (IEEs)

FTEs and IEEs are designed to create clarity and compliance in family trusts. Yet, poor understanding and record-keeping often lead to problems:

• Confusion over who belongs to the family group

• Incorrect distributions

• Mismanagement of tax obligations

• Overpayment or incorrect refunds of Family Trust Distribution Tax (FTDT)

Key takeaway: Trustees need a thorough understanding of family group definitions, how elections affect distributions, and the tax responsibilities between trusts and beneficiaries.

Common Pitfalls in Succession Planning

Trusts are frequently used in succession planning, but mistakes here can be costly:

• Ignoring Division 7A rules – Forgiving loans or debts without considering Division 7A can trigger unintended tax events.

• Trustee amendments – Changes to trustees, beneficiaries, or vesting dates without proper advice can lead to unexpected tax consequences.

• Distributions outside the family group – Even with an FTE, distributions to non-family members can invite ATO scrutiny.

• Adding an IEE – Increases compliance obligations and ATO attention.

Franking Credits and Trusts

Franking credits are another area under the ATO’s microscope. Common mistakes include:

• Failing to reconcile franking account balances

• Ignoring franking credit integrity rules

• Overlooking the 45-day holding period (90 days for preference shares)

• Missing valid family trust elections required to access franking credits

Missing any of these steps can result in the loss of credits or additional tax liabilities.

Practical Steps for Trustees

The ATO has released a checklist to prevent basic trust errors. Key points for trustees include:

• Clearly defining income for the trust estate

• Identifying all beneficiaries accurately

• Properly documenting resolutions and entitlements

• Maintaining accurate records of FTEs and IEEs

• Ensuring compliance with franking credit rules

Good governance isn’t just about compliance — it’s about protecting beneficiaries, preserving wealth, avoiding surprises, and ensuring your legacy is secure.

When to Seek Professional Advice

If your trust involves succession planning, family elections, franking credits, or complex distributions, now is the time to review it. Fixing problems early is always cheaper than explaining them to the ATO later.

Consulting an expert in accounting, tax, and trust law can help ensure your trust operates correctly and avoids costly mistakes.

Ready to Take the Next Step?

Financial planning is a journey, not a destination. It’s about making informed decisions today to ensure a brighter tomorrow. If you’re ready to take control of your business’s financial future, why not book an online or in-person meeting with us? Visit Ceebeks Business Solutions for Good to schedule a consultation. Let’s work together to create a financial plan that helps you achieve your goals and make a positive impact in your community.

Have a great day!

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General advice disclaimer

The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

Only financial planning advice provided by Ceebeks^TM Financial Solutions is associated with InterPrac Financial Planning Pty Ltd ASFL 246638. 

Christopher Beks (Authorised Representative no. 231937) is a director of Ceebeks^TM Financial Solutions (Authorised Representative no. 344518) and an Authorised Representative of InterPrac Financial Planning Pty Ltd ASFL 246638 and is authorised to provide personal financial advice.

Chris Beks operates under Beks and Associates Pty Ltd, Corporate Authorised Representative No. 344518.