Special Disability Trusts
- A Special Disability Trust is defined in the same way under both Federal and State taxation legislation. The definition is that in the Social Security Act 1991 (Cth) section 1209L and the Veterans Entitlement Act 1991 (Cth) section 52ZZZW. Both definitions rely upon the disabled individual meeting the definition of ‘severe disability’ under section 1209M of the Social Security Act 1991 (Cth) if over 16 years of age or the definition of a profoundly disabled child under section 197(1) of the Social Security Act 1991 (Cth) if under 16 years of age.[1]
- A Special Disability trust must be established by parents or immediate family members of the person with severe disabilities, primarily for the current and future accommodation and care needs of that disabled person. Currently, trust income is excluded from the social security income test of the beneficiary and an asset test exemption of $647,500[2] is available. Federal Tax Concessions relate to the income tax position of the beneficiary and the CGT event(s) which may occur on the trustee’s acquisition of assets.
- Since 1 July 2008 any unexpended income of the trust is taxed at the beneficiary’s personal income tax rate (rather than the highest marginal tax rate, which previously applied). Various CGT exemptions have also been implemented, particularly tax exemptions for any assets gifted into a Special Disability Trust, main residence exemptions and exemptions are available for the recipient of the beneficiary’s main residence, if that residence is disposed of within two years of the beneficiary’s death. There are also gifting concessions available totalling up to $500,000 for eligible family members of the principal beneficiary.
- Stamp Duty and Land Tax concessions are also available in South Australia,[3] these were implemented in 2015.[4] Currently, a Stamp Duty exemption exists for the transfer of an interest in land to the trustee of a Special Disability Trust,[5] however there are certain eligibility requirements to be met in order for the exemption to apply. The land transferred must constitute the principal place of residence of the disabled person within 12 months of the transfer occurring.
- Land Tax concessions exempt land from Land Tax in the event it is owned by the trustee of a Special Disability Trust and used as the principal place of residence of the beneficiary.[6] This exemption will automatically be applied if the land is subject to the exemptions under the Stamp Duty Act 1923 (SA) discussed above.
[1] There are some additional criteria which may allow a person under 16 years to qualify even if he or she does not meet the definition in Social Security Act 1991 (Cth) s 197(1).
[2] Note this amount is indexed each year on 1 July, Department of Human Services.
[3] There are similar duty concessions in other states: Duties Act 1997 (NSW) s 65(22), Duties Act 2001 (Qld) s 126A, Duties Act 2008 (WA) s 111, Duties Act 2001 (Tas) s 54, Duties Act 2000 (Vic) s 38A, Duties Act 1999 (ACT) s 73B and Stamp Duty Act (NT) Schedule 2, 6(e).
[4] 2015/2016 State Budget see Revenue SA Department of Treasury and Finance, ‘Information Circular No: 79’ on Special Disability Trusts (18 June 2015).
[5] Stamp Duties Act 1923 (SA) s 71CAA.
[6] Land Tax Act 1936 (SA) s 5(10)(h).