Senate

Explanatory Memorandum

Circulated By the Authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP

Schedule 1 - Special disability trusts

Summary

This Schedule introduces a 2010 Budget measure that amends the special disability trust provisions in the social security and veterans' entitlements legislation to widen the appeal of the provisions. The amendments relax the purpose and work capacity tests in relation to these trusts, and give trustees greater flexibility to meet costs relating to the beneficiary's health, wellbeing, recreation, independence and social inclusion.

Background

Special disability trusts were established in 2006 to assist family members, who have the financial means to do so, to make private financial provision for the current and future care and accommodation needs of their family member with a severe disability.

The Senate Standing Committee on Community Affairs inquired into why more families were not making use of the special disability trust provisions and made various recommendations to make special disability trusts more attractive to families of people with severe disabilities.

This measure helps address a number of the recommendations contained in the Standing Committee's report - in particular, the relaxation of the work capacity and trust purpose requirements.

This Schedule makes amendments to both Division 1 of Part 3.18A of Chapter 3 of the Social Security Act and Division 11B of Part IIIB of the Veterans' Entitlements Act in relation to special disability trusts.

The amendments made by this Schedule commence on 1 January 2011.

Explanation of the changes

Amendments to the Social Security Act

Item 1 inserts a new paragraph 1209L(ea) after paragraph 1209L(e) to include a requirement that special disability trusts meet the expenditure requirements to be inserted by item 5 below.

Item 2 repeals paragraph 1209M(2)(c) and substitutes a new paragraph 1209M(2)(c).

Subsection 1209M(2) provides the impairment or disability conditions that a principal beneficiary, who has reached 16 years of age, must have in order to be the principal beneficiary for the purposes of this Part.

New paragraph 1209M(2)(c) changes the work capacity tests in the beneficiary requirements to provide a greater scope for beneficiaries to work and still meet the criteria for special disability trusts. New subparagraph 1209M(2)(c)(i) provides that a person can be working for up to seven hours a week at or above the relevant minimum wage and still meet the beneficiary requirements. New subparagraph 1209M(2)(c)(ii) provides that a person can be working for wages determined in accordance with the supported wage system and still meet the beneficiary requirements.

Item 3 omits the word 'sole' in subsection 1209N(1) and substitutes the word 'primary'. Subsection 1209N(1) provides that the primary purpose, during the beneficiary's lifetime, must be to meet the beneficiary's reasonable care and accommodation needs.

The amendment is a relaxation of the purpose test and provides that a trust can still meet the criteria for a special disability trust, even if it has purposes other than meeting the reasonable care and accommodation needs of the beneficiary, provided that remains the primary purpose of the trust.

As reflected in the note to item 3 , the heading to subsection 1209N(1) is also amended by omitting the word 'sole' and substituting the word 'primary'.

Item 4 repeals subsections 1209N(2), (3) and (4) and substitutes new subsections 1209N(2), (3) and (4).

New paragraph 1209N(2)(a) provides that a trust can have purposes that are both ancillary to the primary purpose and necessary or desirable to facilitate the primary purpose. This new paragraph effectively replicates the old subsection 1209N(2).

New paragraph 1209N(2)(b) provides that a trust can also have purposes that are primarily for the benefit of the principal beneficiary.

Note 1 at the end of new subsection 1209N(2) confirms for the reader that a particular purpose of a trust may fulfil the matters set out in both of paragraphs 1209N(2)(a) and (b).

Note 2 at the end of new subsection 1209N(2) alerts the reader to the new trust expenditure requirements inserted by item 5 below.

New paragraph 1209N(3)(a) provides that the reasonable care and accommodation needs of a beneficiary of a special disability trust must be decided in accordance with any guidelines made under new subsection 1209N(4). New paragraph 1209N(3)(b) provides that purposes that are for the primary benefit of the principal beneficiary of a special disability trust must be decided in accordance with any guidelines made under new subsection 1209N(4).

New subsection 1209N(4) gives the Secretary a discretionary power to make guidelines, by legislative instrument, for deciding what are, or are not, reasonable care and accommodation needs, and what are, or are not, purposes that are primarily for the benefit of the principal beneficiary.

Item 5 inserts a new section 1209RA into Division 1 of Part 3.18A of Chapter 3, immediately after section 1209R.

New section 1209RA sets out the trust expenditure requirements that a trust must meet to be considered a special disability trust. Subsection 1209RA(1) provides that, if there is a determination made under subsection 1209RA(3), and a trust has one or more purposes (other than the primary purpose) that are primarily for the benefit of the principal beneficiary, the trust must comply with the determination made in accordance with subsection 1209RA(3).

New subsection 1209RA(2) provides that a decision about whether a trust's purposes are primarily for the benefit of the principal beneficiary must be made in accordance with any guidelines made by the Secretary in accordance with subsection 1209N(4).

New subsection 1209RA(3) gives the Secretary discretionary power to determine the value of income and assets that may be applied by a trust, in each financial year, for purposes that primarily benefit the principal beneficiary.

Amendments to the Veterans' Entitlements Act

Item 6 inserts new paragraph 52ZZZW(ea).

Section 52ZZZW sets out the provisions which detail the requirements that must be complied with in order for a special disability trust to be regarded as such for the purposes of the Veterans' Entitlements Act.

New paragraph 52ZZZW(ea) includes the 'trust expenditure requirements' that are referred to in new section 52ZZZWEA (inserted by item 10 ).

Item 7 repeals and substitutes paragraph 52ZZZWA(2)(c).

Section 52ZZZWA sets out the conditions of impairment and disability that the beneficiary of the special disability trust must meet in order to satisfy the requirements of the provision.

New paragraph 52ZZZWA(2)(c) provides that the beneficiary of the special disability trust must have a disability as a result of which:

•

the beneficiary is not working and is not likely to work for more than seven hours a week for a wage that is equal to or higher than the 'relevant minimum wage' within the meaning of subsection 23(1) of the Social Security Act; or

•

the beneficiary works for wages that have been set in accordance with the Commonwealth program known as the 'supported wage system'.

Items 8 and 9 amend section 52ZZZWB. Section 52ZZZWB provides that the sole purpose of a trust that is to be regarded as a special disability trust is to provide for the 'care and accommodation' of the principal beneficiary of the trust.

The amendments provide for a relaxation of the purpose test. They provide that a trust can still meet the criteria for a special disability trust, even if it has purposes other than meeting the reasonable care and accommodation needs of the beneficiary, provided that those needs remain the primary purpose of the trust.

Subsection 52ZZZWB(1) is amended by replacing the reference to the 'sole' purpose of the special disability trust with a reference to the 'primary' purpose of the special disability trust, as provided by the trust deed, being to meet the reasonable care and accommodation needs of the principal beneficiary.

As a consequence, the heading to subsection 52ZZZWB(1) is also amended to describe the provision as referring to the 'primary purpose - care and accommodation for (the) principal beneficiary'.

Subsections 52ZZZWB(2), (3) and (4) are repealed and substituted by item 9 .

New subsection 52ZZZWB(2) provides that the trust may have other purposes if those other purposes:

•

have the function of being both ancillary to the primary purpose and necessary or desirable in facilitating the achievement of the primary purpose; or

•

are primarily for the benefit of the principal beneficiary.

There is a distinction to be made between 'ancillary' purposes and 'other' purposes.

In referring to the 'ancillary purposes' of the trust, subsection 52ZZZWB(2) is referring to those provisions of the trust that are necessary or desirable in facilitating the primary purpose.

The relevant provisions would generally concern the maintenance and the practical administration of the trust, and are not matters which would need to be addressed in the guidelines determined under subsection 52ZZZWB(4).

The 'other purposes' that the trust may refer to and which are subject to the guidelines determined under subsection 52ZZZWB(4) are those purposes, other than the primary purpose, that will benefit the principal beneficiary.

Note 1 to subsection 52ZZZWB(2) refers to the possibility of a particular purpose being both ancillary and primarily for the benefit of the principal beneficiary.

Note 2 to subsection 52ZZZWB(2) refers to the guidelines made under section 52ZZZWEA (inserted by item 10 ) that provide for the limits on the values of income and assets that may be applied for purposes other than the primary purpose, for the benefit of the principal beneficiary.

New subsection 52ZZZWB(3) refers to the guidelines made under the provisions of new subsection 52ZZZWB(4) and provides that:

•

the reasonable care and accommodation needs of the principal beneficiary of a special disability trust must be decided in accordance with the guidelines in the circumstances where the guidelines refer to those needs; and

•

purposes which are other than the primary purpose that are primarily for the benefit of the principal beneficiary must be decided in accordance with the guidelines in the circumstances where the guidelines refer to those purposes.

New subsection 52ZZZWB(4) provides the Repatriation Commission with a discretionary power to make (by legislative instrument) guidelines that are to be used for deciding either or both of the following:

•

what are, and what are not, to be regarded as being the reasonable care and accommodation needs for the beneficiaries of a special disability trust;

•

what are, and what are not, to be regarded as purposes of the trusts, other than the primary purpose, that are primarily for the benefit of the beneficiaries of the trusts.

Item 10 inserts new section 52ZZZWEA.

New section 52ZZZWEA sets out the expenditure requirements for trusts that are to be regarded as special disability trusts.

New subsection 52ZZZWEA(1) is applicable in the circumstances where the Repatriation Commission has made a determination under subsection 52ZZZWEA(3) that specifies the total value of income and assets of the special disability trust that can be applied for purposes other than the primary purpose for each tax year.

New subsection 52ZZZWEA(1) provides that, where a special disability trust has one or more purposes that are primarily for the benefit of the principal beneficiary, other than the primary purpose referred to in subsection 52ZZZWB(1), the total value of the income and assets of the special disability trust that are applied for other purposes, other than the primary purpose, are not to exceed the value that is specified in the determination for that tax year.

New subsection 52ZZZWEA(2) is applicable where special disability trust guidelines have been made under paragraph 52ZZZWB(4)(b). In those circumstances, the question as to whether a purpose for which the income and assets of a special disability trust have been applied is one of the other purposes referred to in subsection 52ZZZWEA(1), is to be decided in accordance with those guidelines.

The note to subsection 52ZZZWEA(2) refers to paragraph 52ZZZWB(4)(b) providing for the determination of guidelines that decide what are, and what are not, the other purposes (other than the primary purpose) that are primarily for the benefit of the beneficiaries of the special disability trusts.

New subsection 52ZZZWEA(3) provides the Repatriation Commission with the discretionary power to make a determination as to the total value of income and assets of a special disability trust that may be applied in each tax year for purposes, other than the primary purpose referred to in subsection 52ZZZWB(1), where those other purposes are primarily for the benefit of the principal beneficiary of the special disability trust.

Item 11 is an application provision and provides that the amendments made by this Schedule will apply to all trusts, irrespective of whether they were created before, on or after commencement of this Schedule and whether or not they met the criteria for being a special disability trust before commencement of this Schedule.

It is intended that, by applying the new provisions to existing, as well as new, trusts, more families will be able to benefit from the concessions

Accordingly, an existing trust, that may not have previously met the criteria for a special disability trust, will not be prevented from being considered a special disability trust under the new criteria simply as a result of when it was created. In fact, it is intended that the relaxation of the purpose and the work capacity rules will result in more existing trusts meeting the criteria and the concessions provided being taken up by families.

While the effect of these provisions means that the trust expenditure requirements will be imposed on trusts midway through a trust's reporting period, there will be no undue burden placed on trusts (or trustees) as all these changes are beneficial.