Proof is in the pudding – what did Cameron tell us about proving FTEs?

One of the critical issues at the centre of Cameron v Commissioner of Taxation [2026] FCA 609 (Cameron) was whether a valid family trust election (FTE) was made in respect of the Cameron Family Trust. If a valid FTE was made, historical distributions made outside the prescribed family group would be subject to family trust distribution tax (FTDT) at the top marginal tax rate.

The findings in Cameron

One of the issues before the Federal Court in the Cameron case was whether a valid FTE had been made pursuant to the conditions prescribed under Schedule 2F to the Income Tax Assessment Act 1936. Cameron‘s case also addressed the deductibility of interest payments in a sub-trust arrangement which is covered in a previous article (you can find here).

The taxpayers in this case argued that no valid FTE had been lodged and that, because the original election could not be produced, the Commissioner could not establish that one existed.

The Commissioner argued that the assessment was made on the basis that the taxpayer trust’s 2000 income tax return had included an election, dated 18 September 2000. The taxpayer contended that this election was due to an accounting or software error when preparing the return, rather than a voluntary election. However, the taxpayer could not provide any direct evidence noting this mistake and instead largely relied on reconstruction of events and an oral testimony.

Ultimately, the Court affirmed the Commissioner’s position, accepting that the existence of an FTE may be established through the totality of the available evidence rather than production of the original election itself.

Historical ATO records, prior income tax returns, the taxpayer trust’s consistent treatment as an elected family trust, and the taxpayers’ own conduct over an extended period all supported the conclusion that a valid FTE had been made. The taxpayer trust was unable to provide any solid evidence to contradict these records and therefore, was unable to discharge the onus of proof that the Commissioner’s assessment was excessive.

As such, the Court held that the taxpayer trust had made a valid FTE, meaning any FY2000 or later distributions made by the trust to an entity outside the family group of the specified individual, Mr. Bruce Cameron was subject to FTDT.

The decision also serves as a timely reminder that the onus of proving that an assessment is excessive is on the taxpayer. Missing documentation will most likely not be sufficient where the surrounding evidence supports the Commissioner’s position.

Why this matter in practice

For many practitioners, the reason for making a FTE could be to simplify company loss tracing concessions, access concessional trust loss rules, meet the holding period rules regulating access to franking credit etc…

For FTEs that have been in place for many years, the original signed election forms may, in some cases, no longer be readily available, particularly where records have not been retained or there have been changes in trustees or advisers over time.

Cameron’s case highlights an FTE found to be validly made remains in force even though the underlying election/documentation has been misplaced or cannot be located. It also shows that the taxpayer must have sufficient evidence that the election was not made to be able to succeed in their argument.

There are several practical implications:

• Permanent records relating to FTEs should be retained indefinitely rather than within standard tax record retention periods. Part of this is that tax agents should hand over relevant records when clients leave.
• Historical trust returns should be reviewed thoroughly before assuming that no election exists. This will need to go back to the purported election year, meaning that taxpayers may want to ignore the informal ‘keep your records for 5 years’ rule that tax usually has.
• Distribution strategies should be tested against the family group restrictions before implementing transactions involving both related and unrelated beneficiaries.
• Due diligence on trust groups should include confirming the historical FTE position, particularly where future restructuring is contemplated.

The decision also highlights the value of reviewing ATO records where uncertainty exists regarding historic elections. The Commissioner’s records provide strong evidence where declarations have, or have not, been made historically even if the trust’s own files do not provide a clear position. A FOI request may be necessary to see whether the ATO has a copy of the underlying election itself, as well as details of when or how the ATO received that election.

Practical Scenarios

Scenario 1 – Trust Income tax returns referred to FTE being made

A discretionary trust has lodged income tax returns for more than 15 years, consistently disclosing its FTE status in each tax return. The trustee was unable to locate the original signed FTE form, and hence considered the trust had not made any FTE.

Consistent with Cameron, it is likely that the ATO or a court would conclude that a valid FTE remains in force. The trust’s historical tax returns consistently disclosing its FTE status, the Commissioner’s records and the trustee’s long-standing treatment of the trust as a family trust would all support the existence of a valid FTE having been made and being effective from the income year as disclosed in the tax returns. The loss of the original election document alone is unlikely to displace that conclusion. The exposure to FTDT may be heighten if the trust had distributed outside the prescribed family group.

Scenario 2 – Trust income tax returns did not disclose any FTE status

A trust has never identified itself as an elected family trust in its tax returns. The trustee cannot locate an FTE and there is no reference to an election in prior accountant files though some records show this was historically discussed. The Commissioner has no record of one having been lodged.

Contrasting the facts in Cameron, there is no surrounding evidence indicating that an election was ever made. In these circumstances, the Commissioner may struggle to establish that a valid FTE exists. The exposure to FTDT would be low or not at all.

Scenario 3 – Inconsistent historical treatment

A trust’s earlier tax returns indicate that an FTE had been made, but subsequent returns prepared by a new adviser omit any reference to an election. The trustee is uncertain whether an election was ever lodged because records from the former accountant have been lost or were not provided as part of the handover to the new accountant.

Applying the reasoning in Cameron, the historical evidence should be considered as a whole, rather than focusing on isolated inconsistencies. Earlier tax return disclosures, ATO records, correspondence or other evidence demonstrating that the trust operated as a family trust may outweigh later omissions.

A trust should not rely solely on recent tax returns when determining the existence of an FTE. A review of historical returns, ATO records and legacy files may be necessary before advising on distributions or restructuring.

Key Takeaways

The Cameron case serves as a reminder that good record keeping and careful historical analysis remain fundamental components of effective tax risk management.

It’s important for trusts to retain FTEs files permanently and thorough reviews be in place to confirm the FTE positions before advising on restructures, succession planning or distributions outside the existing family group.

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