This information is for the trustees of special disability trusts and the principal beneficiaries of such trusts (or their tax advisers).
It explains how to complete the trust tax return of the trust and the individual tax return of the principal beneficiary.
How special disability trusts are taxed
Special disability trusts are trusts established in accordance with Part 3.18A of the Social Security Act 1991External Link to help families and carers provide financially for the care and accommodation of a person with a severe disability – referred to as the principal beneficiary.
The tax rules for special disability trusts are designed so that the net income of the trust is taxed at the principal beneficiary's marginal tax rate, rather than some or all of it being assessed to the trustee at the rates applicable under section 99A.
Unlike other trusts, where taxation of net income depends on a beneficiary being actually presently entitled to trust income, a principal beneficiary is deemed to be presently entitled to all of the income of a special disability trust (even if there is none). The principal beneficiary of the trust is also treated for tax purposes as though they are under a legal disability, even if they are not. This means the entire net income of the trust is assessed to the trustee on behalf of the beneficiary.
If the principal beneficiary is a beneficiary in more than one trust or derives income from other sources, the net income of the special disability trust should also be included in the beneficiary's assessable income. Any tax payable by the trustee of the special disability trust should be claimed as a credit on the beneficiary's individual tax return (to prevent double taxation).
If a trust estate is not a special disability trust at the end of an income year, these rules do not apply and net income is taxed under the ordinary trust taxation rules.
Example
Mark is the principal beneficiary of the Lang SDT, which is a special disability trust. Mark is an Australian resident, is not under a legal disability and has a part-time job during the income year from which he earns $15,000.
During the income year, the Lang SDT earns income of $25,000. The net income of the trust is also $25,000.
The trustee of the Lang SDT applies $20,000 for Mark's reasonable care and accommodation costs during the income year and retains the remaining $5,000 in the trust.
Mark is treated as if he is presently entitled to all of the income of the Lang SDT and under a legal disability. The trustee of the Lang SDT is therefore assessed on the entire $25,000 in accordance with subsection 98(1). However, as Mark has also derived income from his part-time employment, he is required to include the entire income of the SDT in his assessable income under subsection 100(1).
Mark is assessed on $40,000 at his marginal rates of tax. He is able to offset against his individual assessment, any tax payable by the trustee of the Lang SDT on the $25,000 of trust net income.
End of exampleCompleting a trust tax return for a special disability trust
Generally you complete a trust tax return for a special disability trust in the same way as for other trusts. There are a few specific requirements:
- The code for the type of trust is 'C'.
- Complete the distribution details at item 57 as follows:
- At the reference to 'Beneficiary 1', provide details of the principal beneficiary of the special disability trust. Include the principal beneficiary's tax file number (if they have one) and date of birth.
- At label V 'Assessment calculation code', insert '45' if the principal beneficiary is a resident of Australia, or '145' if the principal beneficiary is a non-resident.
- Complete the remaining labels under label V 'Assessment calculation code' as necessary for beneficiary 1 (as per the return instructions).
- Leave the other beneficiary statements of distribution blank.
- You don't need to provide any details of income to which no beneficiary is presently entitled. This is because the principal beneficiary of the trust is treated as being presently entitled to all of the income of the trust.
- Any refundable tax offset amount that is refundable in the trust tax return should not also be claimed in the beneficiary's individual tax return. This means the following items should be claimed only in the trust tax return
- all 'share of credits from income' amounts at item 8
- all 'TFN amounts withheld from gross interest' at item 11
- all 'TFN amounts withheld from dividends' at item 12.
Completing an individual tax return for a principal beneficiary
If the principal beneficiary is required to lodge an Individual tax return, the guidance below will help in completing it.
If the special disability trust has a total net income amount at item 26 of the trust tax return, the principal beneficiary should include that amount in their individual tax return at item 13 (of the supplementary section).
If the trustee paid tax on that net income, the principal beneficiary should:
- claim the tax paid by the trustee as a credit at P item T9 'Other refundable tax offsets' in their individual tax return
- print S in the code box at the right of P.
In addition to any income from the special disability trust, the principal beneficiary should include in their return any other personally derived assessable income or deductible expenditure incurred.
If the special disability trust has net income but is not required to lodge a trust tax return, the principal beneficiary should:
- still include the amount of net income at item 13
- not include any amount as a credit at item T9 'Other refundable tax offsets', as the trustee will not have paid any tax.