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Australia Improves Disability Trust Tax Rules

Monday, May 23, 2011

The Australian Assistant Treasurer Bill Shorten has announced that the government will introduce legislation to remove further income tax barriers that impede families from making financial contributions to a Special Disability Trust (SDT).

Since 2006, families have been able to establish an SDT to provide for the current and future care and accommodation needs of a family member with severe disability (the "principal beneficiary"). SDTs attract social security means test concessions for the eligible contributors and the principal beneficiary.

"These changes will ease the financial burden on families by assisting them to provide for the care and accommodation needs of a person with severe disability," the Assistant Treasurer said.

To make SDTs more beneficial for families, the government will:

  • Provide a capital gains tax (CGT) exemption for assets transferred into an SDT for no consideration. The proposed treatment is that for inter vivos transfers, the transferor will disregard any capital gains or capital losses on the asset when it is transferred into an SDT for no consideration. For testamentary transfers, the first element of the asset's cost base and reduced cost base in the hands of the trustee of an SDT will be equal to the market value of the asset on the day the transferor died. This effectively exempts any capital gain or capital loss that has been accrued up until the transferor's death.
  • Backdate the application of the 2009-10 Budget measure that provides a CGT main residence exemption for SDTs to 2006-07. The proposal is that this measure will now apply to CGT events happening in the 2006-07 income year and later income years. This aligns the application date of the measure to when SDTs were first able to be established.
  • Provide a CGT exemption for the recipient of the principal beneficiary's main residence, if disposed of within two years of the principal beneficiary's death. The proposed treatment is that the recipient of a dwelling that was a principal beneficiary's main residence will disregard a capital gain or capital loss on the dwelling, providing the recipient's ownership interest ends within two years of the principal beneficiary's death. To be eligible for the exemption, the following conditions must be satisfied just before the principal beneficiary's death: the dwelling must be the principal beneficiary's main residence; the dwelling must not be used to produce assessable income; and the trust must be an SDT.
  • Ensure equivalent taxation treatment amongst SDTs established under different Acts. This proposal will ensure that the taxation treatment of SDTs set up under the Veterans' Entitlements Act 1986 will be the same as the treatment for SDTs set up under the Social Security Act 1991.

These changes will apply from the 2006-07 income year, to align with when SDTs were first able to be established.

Parliamentary Secretary for Disability and Carers, Senator Jan McLucas, said: "By removing these barriers, SDTs will become more attractive for families looking to provide for the long-term care of a family member with severe disability."

The government intends to release an exposure draft of the legislation as soon as is practicable after the consultation on the policy design, covering these changes as well as the previously announced measure to extend the CGT main residence exemption extension to SDTs.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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