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Where the principal beneficiary of a special disability trust dies, there may be an impact on the income support payments a donor is receiving (if they are on income support) where they contributed to the trust within 5 years of the trust ceasing to be a special disability trust.
Note: These rules may also apply where a trust ceases to be assessed as a special disability trust because of non-compliance with the legislative requirements.
Deprivation may apply where the contributor DOES NOT receive, on winding-up of the trust, a comparable percentage of the funds at winding-up that reflects the total of all of their contributions to the trust. Deprivation will apply from the date the trust is wound-up and will continue until 5 years from the date of the original gift to the trust.
Note: Deprivation will only apply for gifts made within 5 years of the trust ceasing to be a special disability trust.
The amount of deprivation that results from the distribution of funds can be calculated as follows:
These deprived amounts apply from the date the trust ceased to be assessed as a special disability trust. It is assessed for the remaining period that would have applied for the original gift (i.e. where the original gift was 3 years ago, the gifting period would be the remaining 2 years of the 5 year deprivation period).
Example: Paul has a special disability trust, which was established by his father, Peter. When the trust was being established, Peter contributed $300,000 and receives the gifting concession for $300,000. That is, nil deprivation at the time of the gift.
One year later, Paul's grandmother, Joan contributes $300,000 to the trust. She receives a gifting concession for $200,000 and the remaining funds of $100,000 are assessed under the deprivation rules at the time of the gift.
On the second anniversary of the trust being established, the trust is wound-up after Paul passes away. At this time, the total net trust assets are $500,000 and the total contributions to the trust are $600,000.
There is a range of scenarios depending on to whom the remaining funds of $500,000 are given to:
Scenario 1: Peter and Joan have $250,000 each returned.
Peter: (300,000 x 500,000 ÷ 600,000) - 250,000 + 0 = nil
Joan: (300,000 x 500,000 ÷ 600,000) - 250,000 + 100,000 = $100,000
Scenario 2: Peter and Joan have nil each returned.
Peter: (300,000 x 500,000 ÷ 600,000) - 0 + 0 = $250,000
Joan: (300,000 x 500,000 ÷ 600,000) - 0 + 100,000 = $350,000
Scenario 3: Peter has $300,000 returned and Joan has $200,000 returned.
Peter: (300,000 x 500,000 ÷ 600,000) - 300,000 + 0 = nil
Joan: (300,000 x 500,000 ÷ 600,000) - 200,000 + 100,000 = $150,000
Scenario 4: Peter and Joan have $100,000 each returned and the balance is donated to a charity.
Peter: (300,000 x 500,000 ÷ 600,000) - 100,000 + 0 = $150,000
Joan: (300,000 x 500,000 ÷ 600,000) - 100,000 + 100,000 = $250,000
Act reference: SSAct section 1209ZD Cessation of special disability trusts
Where a special disability trust has used up all of its available funds (i.e. the available funds are zero), the trust must be wound-up. As there are no available funds, no deprivation will apply to contributions that received the gifting concession.
For contributions to a special disability trust that are being assessed for deprivation, the deprivation being assessed will continue to be assessed for the full 5-year deprivation period.
Note: As long as there are funds remaining, the trust must continue to meet its reporting obligations specified in 184.108.40.206.
Where a special disability trust has been assessed as not meeting the legislative requirements, it will be considered to be non-compliant. Non-complying trusts will be reassessed under the normal private trusts and companies rules.
For deprivation purposes, the gifting concession ceases to apply from the date that a trust becomes non-compliant. The normal gifting rules apply from that date to all gifts made within the previous 5 years where the contributor received a gifting concession. There are 2 steps in calculating the amount of deprivation to be assessed depending on whether the contributor is assessed as being an attributable stakeholder.
Step 1: The deprived amount is calculated as per the following formula:
Step 2: If the contributor is determined to be an attributable stakeholder under the normal private trust and companies rules, then the deprivation amount is reduced according to the disposal rules in 220.127.116.11.
Last reviewed: 1 July 2011