Home | DSS | PM&C | Education | Employment | AGD | Contact us
 
SS Guide Contents Using the Guide What's New 1 Key Terms & Principles 2 Claim Verification 3 Qualification & Payability 4 Income & Assets 5 Payment Rates 6 Reviews, Debts & Payment Recovery 7 Portability & CFP 8 Administration Act Provisions 9 Visas, Entitlements & Assurances of Support 10 Australian Social Security Agreements 11 Income Management Acronym List Keyword Index Act Section Index Site Map

Print this page Print this page    

4.14.4.30 Deprivation & Special Disability Trusts

Summary

This topic contains information on:

  • winding-up due to death of principal beneficiary,
  • winding-up due to no available funds, and
  • what happens when a trust becomes non-compliant.

 

Winding-up due to death of principal beneficiary

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:

  • (gifted amount(s) x final net assets of the trust ÷ total contributions to the trust)
  • minus amount returned to the contributor
  • plus any deprivation at the time of the gift (this continues unchanged).

 

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).

Note:

  • Where the calculated amount is less than zero, the amount of deprivation at the point in time that the trust is wound-up will be zero (i.e. no deprivation will be assessed).
  • When the trust is wound-up and the calculated deprived amount is less than zero, any deprivation that applied before the trust was wound-up will continue to be assessed for the whole 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

  • Note: Deprivation cannot be less than zero, thus the deprived amount is zero.

 

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

 

Winding-up due to no available funds

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 4.14.3.50.

 

What happens when a trust becomes non-compliant

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:

  • (gifted amount(s) x final net assets of the trust ÷ total contributions to the trust)
  • minus amounts returned to the contributor
  • plus any deprivation at the time of the gift (this continues unchanged).

 

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 4.12.10.20.

 

Policy reference: SS Guide 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002, 4.14.3.50 Reporting Requirements for Special Disability Trusts

_______________________________________________________

Last reviewed: 1 July 2011


Previous
Previous
Top
Top
Next
Next





Page Url: ../../../../ssg/ssguide-4/pc_13802/pc_13813/pc_13825.html
Last Edited: 02/07/2012 1:57:54 PM


© Commonwealth of Australia, 2014 All rights reserved