House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Families, Community Services and Indigenous Affairs, the Hon Mal Brough MP)

Schedule 7 - Special disability trusts

Part 1 - Social Security Act 1991

Summary

This measure assists families to make private financial provision, through a special disability trust, for the future care and accommodation needs of their children and certain close relatives with severe disabilities. This measure provides certainty for families who are concerned that their disabled family member may not have the financial support to take care of their accommodation or care needs when the family is no longer able to care for them.

The special disability trust must be established solely in order to provide for the current and future care and accommodation needs of the beneficiary. The assessable assets of the trust are to be exempt from the means test up to the specified limit, which will be initially set at $500,000 and increased annually on 1 July in line with the ABS Consumer Price Index (CPI). The current private trusts and companies rules do not apply in relation to those exempt assets. Under the assets test, where the assessable assets of the trust are in excess of the limit, the balance is to be assessed as the beneficiary's assets. Under the income test, the income derived by the trust and income received from that trust by the beneficiary are exempt from the income test.

In addition, the measure enables contributions of up to $500,000 to be made to the special disability trust in certain circumstances without the normal social security asset disposal rules applying.

Background

Under the Social Security Act, there are limits to the assets a person can hold without those assets affecting their entitlement to social security payments. Further, a person who gives away an asset is treated, for a 5-year period, as if the person still owned the asset when assessing entitlement to social security payments. The operation of these rules has made it difficult for immediate family members of a severely disabled person to set up a trust to ensure the disabled family member's continued care without their social security payments being affected.

This measure is part of a package by the Government aimed at assisting families with a severely disabled family member.

Explanation of the changes

Social Security Act 1991

Item 1 inserts into subsection 23(1) a definition of 'immediate family member'. This definition covers natural parents, adoptive or step-parents, persons who are legal guardians of the person, or were when he or she was under 18 years of age, grandparents and siblings.

Item 2 inserts into subsection 23(1) a definition of 'principal beneficiary'. The term 'principal beneficiary' has the meaning given by subsection 1209M(1).

Item 3 inserts into subsection 23(1) a definition of 'sibling'. This term is defined to include half-, adoptive and step-brothers and sisters of a person.

Item 4 inserts into subsection 23(1) a definition of 'special disability trust'. The term 'special disability trust' has the meaning given by new section 1209L.

Item 5 repeals the note following subsection 1123(1) and substitutes two new notes. The first note is identical to the repealed note, apart from being now called 'Note 1'. The second note states that under Division 4, Part 2.24 certain transfers of assets to special disability trusts are not taken to be a disposal of an asset (subject to a limit on the aggregate value of the transfers).

Item 6 inserts after section 1124 a note which states that if subsection 1209ZA(2) applies in relation to the transfer of an asset to a special disability trust, that subsection has the effect of reducing the amount of the disposal.

Item 7 inserts into section 1190 a new item 35 into the table after item 34 and item 8 inserts into section 1191 a new item 25 into the table after item 24. The inclusion of these items ensures that the value of the assets test exemption limit of the special disability trust will be indexed in accordance with the CPI.

The following example shows how indexation of the assets test exemption limit might affect a special disability trust. (Note: the CPI figure used is a sample only, and is not the actual CPI for 1 July 2007.)

Item 9 inserts after subsection 1192(5) a new subsection 1192(5A), which specifies that the first indexation of item 25 (inserted by item 8 above) will take place on 1 July 2007.

Item 10 inserts after subsection 1207X(2) a new subsection 1207X(2A), which provides that the only attributable stakeholder of a special disability trust is the principal beneficiary of the trust.

Item 11 inserts after subsection 1207Y(1) a note that provides that attribution of the income of a special disability trust is dealt with in accordance with section 1209V.

Item 12 inserts after subsection 1208E(1) a note that provides that attribution of the assets of a special disability trust is dealt with in accordance with section 1209Y.

Item 13 inserts after Part 3.18 a new Part 3.18A, titled 'Private financial provision for certain people with disabilities'.

Division 1 - Special disability trust

Section 1209L sets out what is a special disability trust. Provided that a trust complies with the various requirements set out in Division 1 of Part 3.18, then it is a special disability trust.

Section 1209M sets out the requirements for who can be the sole beneficiary of a special disability trust. Subsection 1209M(1) provides that the trust must have only one beneficiary, referred to as the principal beneficiary, apart from any residuary beneficiary. If a family has more than one severely disabled family member, separate complying special disability trusts may be set up for each severely disabled person to enable the family members who transfer assets to the trust to obtain the beneficial means test concession treatment for each family member.

Subsection 1209M(2) provides the impairment or disability conditions that the principal beneficiary, who has reached 16 years of age, must have in order to be the principal beneficiary for the purposes of this Part. The purpose of subsection 1209M(2) is to ensure that this Part only applies in relation to people who have severe disabilities and who are not able to work in an open, competitive workplace because of their disability. For example, a blind person, who may qualify for disability support pension, or have a carer, would not meet subsection 1209M(2) if he or she were able to work at or above the minimum wage.

Paragraph 1209M(2)(a) provides that the principal beneficiary must either have an impairment, including permanent blindness, that would qualify the person for disability support pension under Part 2.3 of the Social Security Act, or be receiving the invalidity service pension or income support supplement, given on the basis of invalidity, under the Veterans' Entitlement Act.

Paragraph 1209M(2)(b) provides that a person must meet the requirements set out in either subparagraph 1209M(2)(b)(i) or subparagraph 1209M(2)(b)(ii) in order to be the principal beneficiary. Subparagraph 1209M(2)(b)(i) provides that the principal beneficiary must have a disability that would qualify a sole carer, if the beneficiary had one, to carer payment or carer allowance. Alternatively, subparagraph 1209M(2)(b)(ii) sets out the sort of supported care accommodation in which the person must live in order to be considered the principal beneficiary.

Paragraph 1209M(2)(c) provides that, in order to be considered the principal beneficiary, the person must have a disability as a result of which he or she is not working and must have no likelihood of working at or above the relevant minimum wage.

Subsection 1209M(3) provides that the Secretary may, by legislative instrument, nominate a particular agreement made between the Commonwealth, States and Territories in relation to supported care accommodation, for the purposes of subparagraph 1209M(2)(b)(ii).

Subsection 1209M(4) provides that a person under 16 years of age, who is a profoundly disabled child within the meaning of section 197 of the Social Security Act, can be the principal beneficiary of a special disability trust.

Subsection 1209M(5) provides that a trust stops being a special disability trust when the principal beneficiary dies.

Subsection 1209M(6) provides that a trust is not a special disability trust for a particular principal beneficiary if, at the time of its creation, there is already another special disability trust, under the Social Security Act or the Veterans' Entitlement Act, in existence for that principal beneficiary.

Section 1209N sets out the purpose requirements of a special disability trust. Subsection 1209N(1) provides that the sole purpose, during the beneficiary's lifetime, must be to meet the beneficiary's reasonable care and accommodation needs. This might include such things as purchasing a property, or a right or interest in a property, for the person.

Subsection 1209N(2) provides that the trust may have purposes, ancillary to meeting the beneficiary's reasonable care and accommodation needs, that are necessary or desirable to facilitate that purpose. This might, for example, allow money to be spent on such things as investing money gifted to the trust, or paying for a professional trustee to administer the trust.

Subsection 1209N(3) provides that the reasonable care and accommodation needs of a beneficiary of a special disability trust must be decided in accordance with any guidelines under subsection 1209N(4). Subsection 1209N(4) gives the Secretary a discretionary power to make guidelines for deciding what are, and what are not, reasonable care and accommodation needs. If no guidelines exist under subsection 1209N(4), then the principal beneficiary's 'reasonable care and accommodation needs' will be determined in accordance with the policy of the relevant department.

Section 1209P sets out the requirements of the trust deed. Subsection 1209P(1) provides that, if there is a determination under subsection 1209P(2), then subject to subsection 1209P(3), a trust deed must comply with a determination under subsection 1209P(2).

Subsection 1209P(2) provides that the Secretary may determine one or more of the following:

•

the form of the trust deed required for a special disability trust;

•

the provisions which must be included in the trust deed; and

•

the form of those provisions, or provisions which cannot be included in the trust deed.

It is anticipated that a determination made by the Secretary will require the trust deed to contain provisions in relation to matters such as financial management and administration. If the Secretary does not make a legislative instrument under subsection 1209P(2), then the requirements of the trust deed will be interpreted in accordance with the policy of the relevant department.

Subsection 1209P(3) provides that a person must not contravene a provision of the trust deed that is required by this section 1209P to be included in the deed.

Section 1209Q sets out the requirements for trustees. The aim of this section is to protect the interests of the principal beneficiary, who may be a vulnerable person by reason of their disability.

Subsection 1209Q(1) sets out various requirements, namely that a trustee is an Australian resident, has not been convicted of any of the offences specified in this subsection, and has not been disqualified from managing corporations under the Corporations Act 2001 .

Subsection 1209Q(2) provides that, if the trustee is a corporation, then the requirements in subsection 1209Q(1) apply in relation to each of the directors.

Section 1209R sets out the requirements for trust property of a special disability trust. Subsection 1209R(1) provides that the trust's assets must not, apart from one exception, include any assets transferred by the beneficiary or the beneficiary's partner. The only exception is if the transferred asset is all or part of a bequest, or a superannuation death benefit, and the transferor received the bequest less than three years before transferring the asset to the trust. This is consistent with the intent of the measure, which is to allow parents and immediate family members to make private financial provision for their severely disabled family member.

Subsection 1209R(2) provides that the trust's assets must not include any compensation received by or on behalf of the beneficiary. The term 'compensation' is defined in section 17 of the Social Security Act. If compensation money is put in a special disability trust, it will not be able to receive the beneficial treatment set out in this Part. Other monies held by the beneficiary, such as compensation, will continue to be treated in accordance with the rules set out in the social security law, including the rules in Part 3.14, which deal with the treatment of compensation payments.

Subsection 1209R(3) provides that the trust must not be used to pay an immediate family member or child of the beneficiary for the provision of care services to the beneficiary or for the repair or maintenance of the principal beneficiary's accommodation.

Subsection 1209R(4) provides that the trustees must not use the trust to purchase or lease property from an immediate family member or child of the beneficiary, even if the property is to be used for the accommodation of the beneficiary. The terms 'child' and 'property' are defined by subsection 1209R(5). 'Property' includes the right to accommodation for life in a residence and a life interest in a residence. This definition is intended to cover property such as granny flats or other accommodation that is part of another home.

Section 1209S sets out the reporting requirements imposed on the trustees of a special disability trust. Subsection 1209S(1) provides that the trustees of the trust must, on or before 31 March each year, give the Secretary written financial statements about the trust in relation to the financial year ending on 30 June of the previous year.

Subsection 1209S(2) sets out that these financial statements must be prepared by a person qualified as provided by a determination under subsection 1209S(4) or, if a determination has not been made, a person approved by the Secretary.

Subsection 1209S(3) provides that, if a determination is made under subsection 1209S(4) that requires financial statements to include information of a stated kind, the financial statements must include that information.

Subsection 1209S(4) gives to the Secretary the power to make a determination for the purposes of subsection 1209S(2).

Section 1209T sets out the audit requirements for a special disability trust. Subsection 1209T(1) provides that, if the trustees receive a request for an audit from a person specified in subsection 1209T(3), the trustees must, within a reasonable time, cause an independent audit to be carried out, or, if an audit had already been carried out, give a copy of that audit to the person making the request. The purpose of paragraph 1209T(1)(b) is to reduce the burden on trustees if there are frequent requests for audits, while maintaining adequate accountability.

Subsection 1209T(2) sets out the audit period. The audit must be in relation to the financial year ending on the previous 30 June, or, if a determination made under subsection 1209T(7) provides for a different period, that period.

Subsection 1209T(3) sets out the people who may request, in writing, that the trustees of the trust provide them with an audit. It provides that a request may be made by the beneficiary, the beneficiary's immediate family members, the beneficiary's legally appointed guardian or financial administrator, someone who has been acting as the beneficiary's guardian on a long-term basis, or the Secretary.

Subsection 1209T(4) provides that, if an audit report is given to the trustees for the purpose of subsection 1209T(1), then the trustees must, within a reasonable time, give a copy to the person requesting the audit, the legally-appointed guardian or financial administrator (unless they requested the audit) and the Secretary (unless he or she requested the audit).

Subsection 1209T(5) sets out who is qualified to prepare an audit. The people who are qualified are those who are set out in a determination made under subsection 1209T(7) (if such a determination has been made), or people approved by the Secretary for this purpose.

Subsection 1209T(6) provides that, if a determination is made under subsection 1209T(7) requiring audits to include certain information, then the audit must include that information.

Subsection 1209T(7) provides that the Secretary may make a determination for the purposes of section 1209T.

Section 1209U deals with a waiver of contravention of this Division. Under the Acts Interpretation Act 1901, a contravention includes a failure to comply.

Subsection 1209U(1) provides, in relation to a trust that would be a special disability trust apart from a failure to comply with a requirement of this Division, that the trust is not prevented from being a special disability trust if the Secretary gives the trustees a written waiver notice, which may require them to comply with certain conditions.

Subsection 1209U(2) provides the period during which a waiver notice has effect.

Subsection 1209U(3) provides that, if guidelines are made under subsection 1209ZB(4), then a decision to give a waiver notice must be in accordance with the guidelines.

Subsection 1209U(4) gives the Secretary the power to make, by legislative instrument, guidelines in relation to waiver notices. It is proposed that the guidelines will deal comprehensively with all factors required to be taken into account in making a waiver decision. However, in the absence of an enforceable legislative instrument made under subsection 1209U(4), waiver decisions will be made in accordance with the policy of the relevant department.

Division 2 - Attribution of income of special disability trusts

Section 1209V deals with the attribution of income of special disability trusts. Subsection 1209V(1) provides that, for the purposes of the Social Security Act, an amount of income derived by a special disability trust, such as from interest accrued on the investment of trust property, is not taken to be income received by any individual. In particular, it is not taken to be the income of the beneficiary, nor any immediate family member who has made a gift to the trust, and will not affect assessment of their income for social security purposes. This treatment is different from the normal social security rules in relation to income of a trust, which enable income derived from a trust to be attributed to the person in control of the trust or the beneficiary.

Subsection 1209V(2) provides that section 1209V has effect despite Division 7 of Part 3.18, which deal with attribution of income of controlled private companies and controlled private trusts, and any other provisions of the Social Security Act.

Section 1209X deals with income amounts received by the principal beneficiary of a special disability trust. It provides that any such income amount is not income of the principal beneficiary for the purposes of the Social Security Act, provided that consideration for the income amount was provided by a distribution from the trust. For example, if a distribution from the trust was used to pay for rental accommodation for the principal beneficiary, then, even though the beneficiary receives an amount that would ordinarily be treated as income (as he or she has received valuable consideration through the provision of the accommodation), this trust distribution is not considered to be income of the principal beneficiary for social security purposes.

Division 3 - Attribution of assets of special disability trusts

Section 1209Y deals with the attribution of assets of special disability trusts. Subsection 1209Y(1) provides that, for the purposes of the Social Security Act, the assets of a special disability trust are not to be included in the assets of the principal beneficiary of the trust.

However, subsection 1209Y(2) provides that section 1209Y does not apply to the value of assets that exceed the trust's asset value limit.

Subsection 1209Y(3) provides that the asset value limit of a special disability trust is $500,000. Under items 8 and 9 above, this amount will be indexed in accordance with the CPI.

Subsection 1209Y(4) provides that the value of any right or interest of the trust in the beneficiary's principal home is disregarded for the purposes of working out the value of assets owned by the trust. This is consistent with normal social security rules, under which a person's principal home is exempt from the assets test.

Subsection 1209Y(5) provides that section 1209Y has effect despite Division 8 of Part 3.18, which deals with attribution of assets of controlled private companies and controlled private trusts, and any other provisions of the Social Security Act.

Division 4 - Transfer to special disability trust

Section 1209Z deals with the effect of transfers made to special disability trusts. Subsection 1209Z(1) provides that, if certain conditions are met, a transfer of assets to a special disability trust is not taken to be a disposal of an asset. These conditions are:

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paragraph 1209Z(1)(a): the asset is transferred by an immediate family member of the beneficiary;

•

paragraph 1209Z(1)(b): the person who transferred the asset, or his or her partner, is of age pension age and receiving a social security pension; or is receiving a service pension and has reached pension age within the meaning of the Veterans' Entitlement Act; or is receiving income support supplement and has reached qualifying age within the meaning of subsection 45A(2) of the Veterans' Entitlement Act;

•

paragraphs 1209Z(1)(c) and (d): the transfer is without consideration and unconditional;

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paragraph 1209Z(1)(e): the value of the transferred asset is less than $500,000; and

•

paragraph 1209Z(1)(f): adding the value of that transferred asset to the value of the transferred assets that have received the concession treatment dealt with by this Part, in regard to the same principal beneficiary does not exceed $500,000.

Subsection 1209Z(2) provides that section 1209Z has effect subject to sections 1209ZA and 1209ZD.

Subsection 1209Z(3) defines the term 'other special disability trust'. It also defines the term 'value' and provides that the value of an asset transferred to a special disability trust means the market value of the asset at the time of the transfer. This definition is the same as the definition of 'value' set out in subsection 1209ZA(4).

Section 1209ZA deals with how a transfer is treated when more than $500,000 worth of assets has been transferred to a special disability trust.

Subsection 1209ZA(1) provides that, even if a transfer to a special disability trust would receive the concessions set out in this Part, but for the fact that the transfer exceeds $500,000, that transfer is still considered to be a disposal of an asset, but only to the extent of the excess.

For example, a father who is eligible for the concession under this Part transfers $600,000 to his son's special disability trust and there have been no other transfers. He would be held to have disposed of an asset valued at $100,000.

Subsection 1209ZA(2) applies to the situation where section 1209Z would apply to the transfer of an asset, but for the fact that the sum of the value of all exempt transfers exceeds $500,000. In that case, the amount of the gift that brings the total amount of transfers to the special disability trust up to $500,000 receives, for social security purposes, the concessional treatment set out in this Part. For example, a father, who is eligible for the concessions under this Part, transferred $300,000 to his son's special disability trust. Later, the son's grandfather, who is also eligible for concessions under this Part, transferred $300,000 to the special disability trust. The grandfather receives the concessional treatment in relation to $200,000 of the $300,000 he transferred to his grandson's special disability trust. Additionally he would be held to have disposed of an asset valued at $100,000.

Subsection 1209ZA(3) provides that section 1209ZA has effect subject to section 1209ZD.

Subsection 1209ZA(4) defines the term 'other special disability trust'. It also defines the term 'value'. This definition is the same as the definition of 'value' set out in subsection 1209Z(3).

Section 1209ZB deals with when transfers are made to the special disability trust by the principal beneficiary's immediate family members who have not reached pension age.

Subsection 1209ZB(1) provides that, if an immediate family member transfers assets to the special disability trust and, at the time of the transfer, neither that person, nor his or her partner:

•

had reached age pension age and was receiving a social security pension; or

•

was receiving a service pension and had reached pension age within the meaning of the Veterans' Entitlement Act; or

•

was receiving income support supplement and had reached qualifying age within the meaning of subsection 45A(2) of the Veterans' Entitlement Act;

then he or she is taken to transfer to the trust at the time when he or she, or his or her partner, reaches age pension age. In accordance with the intention of this measure, this enables immediate family members to transfer assets to the special disability trust, in order to plan for the principal beneficiary's welfare, and take advantage of the beneficial treatment under this Part at some later date. This includes situations, for example, where, at the time of transfer, a person was of age pension age but was not then receiving a social security pension (for example, the person is participating in the pension bonus scheme).

Subsection 1209ZB(2) provides a special rule for the order in which transfers to a special disability trust will be taken to have been made. If the result of subsection 1209ZB(1) is that transfers are taken to have been made on the same day, the transfers are taken to have been made in the order in which they would have been taken to have been made but for this Division.

In general, the effect of the gifting rules in Division 4 of this Part is that the first $500,000 of gifts, made by immediate family members who are eligible for the concession to the special disability trust, receives the concessional treatment. This allows the special disability trust to hold assets in excess of the $500,000 and allows immediate family members to have access to the full $500,000 concession amount, but only on a 'first come, first served' basis. For example:

•

If an immediate family member who is over age pension age and is receiving a social security pension, gifts $200,000 to the special disability trust, then someone else (a person who is not receiving a social security pension) gifts $300,000 to the trust, an immediate family member (including the person making the first gift) can make further gifts of up to $300,000 and still receive the beneficial treatment under this Part.

•

A parent aged 62 gifts $500,000 to a special disability trust. This parent is receiving a social security pension, for example, carer payment, but is not able to receive beneficial treatment under this Part at that time, as he or she is not currently of age pension age. Another parent already in receipt of age pension gifts $500,000. The beneficial treatment under this Part would apply to the second gift of $500,000 from the parent in receipt of age pension. The parent aged 62 would not receive any concession for their gift if they claim payment at age pension age.

Section 1209ZC provides that, where the principal beneficiary of the trust, or his or her partner, unconditionally transfers an asset to their special disability trust and receives, or is entitled to, no consideration for the transfer then this transfer will not be taken to be a disposal of an asset for the purposes of section 1123 of the Social Security Act.

Section 1209ZD deals with what happens when special disability trusts cease to exist, or cease to be special disability trusts. This may occur, for example, in accordance with section 1209P, if the trust deed does not comply with the requirements of this Part, such as when compensation money is transferred to the special disability trust in contravention of section 1209R.

Subsection 1209ZD(1) provides that, if a person had transferred an asset to a special disability trust during the period of five years before the cessation of the trust, and sections 1209Z, 1209ZA or 1209ZC applied to the transfer, then the transfer is taken to be a disposal of an asset that occurred at the time of the transfer.

Subsection 1209ZD(2) sets out a formula for determining the amount of the disposal, including, for example, situations where the value of the special disability trust's assets is insufficient to refund the full value of transfers to everyone who transferred assets to the trust. It includes definitions of a number of terms used in the formula. For example, a grandfather who is receiving age pension has transferred $300,000 to his grandson's special disability trust, and has received concessionary treatment under section 1209Z. When the grandfather transferred the asset, the trust already had assets of $300,000. At the time when the trust ceases to be a special disability trust under subsection 1209ZD(2), the value of the assets of the trust is $550,000. Because the value of the asset the grandfather transferred is less than $500,000, there is no subsection 1209ZA(2) amount. According to the formula in subsection 1209ZD(1), the amount of the disposal is:

$300,000 x $550,000 = $275,000

$600,000

The disposal of $275,000 will be taken into account in determining the grandfather's rate of payment from the date of cessation of the special disability trust, until five years from the date of the transfer by the grandfather.

Subsection 1209ZD(3) deals with working out the value of a trust asset at the time of its transfer, when a special disability trust ceases to exist, or ceases to be a special disability trust because the principal beneficiary dies. In that case, the value of the asset that is held as a deprivation against the person who transferred the asset is the value of so much (if any) of the asset that is not returned to the transferor. For example, in the situation above, $275,000 of the grandfather's $300,000 is returned to him, which is the proportional amount. If $250,000 is returned to the grandfather after the special disability trust ceases to exist, then $50,000 is the asset value. The amount of the disposal is:

$50,000 x $550,000 = $45,833

$600,000

The disposal of $45,833 will be taken into account in determining the grandfather's rate of payment from the date of cessation of the special disability trust, until five years from the date of the transfer by the grandfather.

Subsection 1209ZD(4) provides that section 1209ZD does not affect the application of sections 1209Z, 1209ZA or 1209ZC to the transfer prior to the trust ceasing to be a special disability trust.

Section 1209ZE provides that this Division (other than section 1209ZB) has effect despite Division 2 of Part 3.12 and any other provisions of the Social Security Act. Division 2 of Part 3.12 deals with disposal of assets and provides that if a person disposes of assets for less than their full value, then a person will be treated, for social security law purposes, as if they still hold an asset equal to the value of the asset disposed of, less any consideration received. The effect of section 1209ZE is that the ordinary disposal of assets rules will not apply in relation to a person if the person transfers an asset to a special disability trust and is eligible for the beneficial treatment under this Part.

Item 14 sets out transitional arrangements for trusts created before 20 September 2006. The intention of this provision is to provide an opportunity for such trusts to be modified to comply with the requirements of a special disability trust in Part 3.18A.

Subitem (1) gives the Secretary the power, in relation to trusts created before 20 September 2006, to exempt certain trusts from the requirements of Division 1 of Part 3.18A of the Social Security Act. The effect of such an exemption is that the trust is not prevented from being a special disability trust. In order to exempt a trust from a particular requirement, the Secretary must give the trustees a written notice of the exemption, and, if the notice requires the trustees to comply with any matter, compliance must occur before the time stated in the notice, which can be no later than 30 June 2007.

Subitem (2) provides that a period referred to in an exemption notice for the purposes of paragraph (b) or sub-item (1) must end at or before 30 June 2007.

Subitem (3) sets out that an exemption notice has effect from the start of 20 September 2006, or the time stated in the notice, which is after that day, until the end of 30 June 2007, or the time stated in the notice which is before that day.

Subitem (4) provides that if guidelines are made under subsection (4) in relation to exemption notices, then any exemption notices made must be in accordance with those guidelines.

Subitem (5) gives the Secretary power to make guidelines for deciding a number of matters relating to the giving of exemption notices. It is proposed that the guidelines will deal comprehensively with all relevant matters relating to the giving of exemption notices under item 14 . However, in the absence of an enforceable legislative instrument made under subitem (4) , exemption notices will be made in accordance with the policy of the relevant department.

Part 2 - Veterans' Entitlements Act 1986

Summary

This measure is aimed at assisting families who have the financial means to do so, to make private financial provisions, through a special disability trust, for the future care and accommodation needs of their sons and daughters with severe disabilities. This measure provides certainty for families who are concerned that their son or daughter may not have the financial support to take care of their accommodation or living needs when the family is no longer able to care for them.

The special disability trust must be established in order to provide for the current and future care and accommodation needs of the beneficiary. The assessable assets of the trust are to be exempt up to the limit, which will be set at $500,000 and increased annually on 1 July in line with the ABS Consumer Price Index (CPI). Under the assets test, where the assessable assets of the trust are in excess of the limit, the balance is to be assessed as the beneficiary's assets. Under the income test, the income and distributions of the trust are to be exempt, irrespective of the total amount of assessable assets held within the trust. The current private trusts and companies rules do not apply.

There is no limit on the amount of contributions (apart from compensation money received by the beneficiary) that can be made to the special disability trust. However, this measure also enables each trust to receive up to $500,000 without any of the gifts being assessed under the disposal rules of the Veterans' Entitlements Act to the donor. The donor is eligible for this so long as the donor or his or her partner, is at, or over pension age or qualifying age, is receiving a service pension or income support supplement, and is a an immediate family member of the severely disabled person.

Background

Under the Veterans' Entitlements Act, there are limits to the assets a person can hold without those assets affecting their entitlement to payments under the Veterans' Entitlements Act. Assets in excess of the limit may reduce the amount of the payments or preclude a person from payments altogether. Further, a person who gives away an asset is treated, for a 5 year period, as if the person still owned the asset when assessing entitlement to payments under the Veterans' Entitlements Act. The operation of these provisions made it difficult for immediate family members of a severely disabled person, who receive payments under the Veterans' Entitlements Act, to set up a trust to ensure the continued care of their severely disabled relative without it affecting their payments under the Veterans' Entitlements Act.

This measure is part of a package by the Government aimed at assisting families with a severely disabled son or daughter. Other measures in the package include counselling to assist families and the provision of financial information kits.

Explanation of the changes

Veterans' Entitlements Act 1986

Items 15 to 18 insert new references into the section 5 index of definitions. References to the new definitions of 'immediate family member', 'principal beneficiary', 'sibling' and 'special disability trust' that are being inserted into subsection 5Q(1) have been added to the index.

Item 19 inserts into subsection 5Q(1) a definition of 'immediate family member'. This definition includes natural parents, including an adoptive or step parent, a person who was a legal guardian of the person when he or she was under 18 years of age, grandparents and siblings.

Item 20 inserts into subsection 5Q(1) a definition of 'principal beneficiary'. The term 'principal beneficiary' has the meaning given by section 52ZZZWA(1).

Item 21 inserts in subsection 5Q(1) a definition of 'sibling'. This includes half, adoptive and step brothers and sisters of a person. The definition is not to apply for the purposes of sections 123 to 123E of the Veterans' Entitlements Act. Those sections are applicable in the circumstances where the beneficiary of a payment under the Veterans' Entitlements Act has died. A Note to the definition refers the reader to subsection 123(1) for the definition of 'sibling' that is used in those sections.

Item 22 inserts into subsection 5Q(1) a definition of 'special disability trust'. The term 'special disability trust' has the meaning given by new section 52ZZZW.

Items 23 and 24 amend section 52E. Item 23 repeals the redundant reference to subsection (1) and item 24 repeals the note following subsection 52E(1) and substitutes two new notes. The first note is identical to the repealed note, apart from being now called 'Note 1'. The second note states that under Subdivision B of Division 11A, Part IIIB certain transfers of assets to special disability trusts are not taken to be a disposal of an asset (subject to a limit on the aggregate value of the transfers).

Item 25 inserts after section 52F a note that states that if subsection 52ZZZWM(2) applies in relation to the transfer of an asset to a special disability trust, that has the effect of reducing the amount of the disposal or disposition.

Item 26 inserts after subsection 52ZZJ(2) a new subsection 52ZZJ(2A), which provides that the only attributable stakeholder of a special disability trust is the principal beneficiary of the trust.

Item 27 inserts after subsection 52ZZK(1) a note that states that attribution of the income of a special disability trust is dealt with in accordance with section 52ZZZWI.

Item 28 inserts after subsection 52ZZR(1) a note that states that attribution of the assets of a special disability trust is dealt with in accordance with section 52ZZZWK.

Item 29 inserts after Division 11A of Part IIIB a new Division 11B, titled 'Private financial provision for certain people with disabilities'.

Subdivision A - Special disability trusts

New section 52ZZZW sets out what is a special disability trust. So long as a trust complies with the various requirements set out in Subdivision A of Division 11B then it is a special disability trust.

New section 52ZZZWA sets out the requirements for who can be the sole beneficiary of a special disability trust. Subsection 52ZZZWA(1) provides that the trust must have only one beneficiary, known as the principal beneficiary. Residuary beneficiaries are allowed. If parents have more than one severely disabled son or daughter, a complying special disability trust may be set up for each son or daughter and obtain the beneficial concession treatment towards $500,000 in relation to each trust.

Paragraph 52ZZZWA(2)(a) provides the impairment or disability conditions that the principal beneficiary, who has reached 16 years of age, must have in order to be the principal beneficiary for the purposes of this Division. This definition matches the criteria for entitlement of several social security and Veterans' Entitlements Act payments. Specifically, this definition matches the criteria for invalidity service pension or invalidity income support supplement under the Veterans' Entitlements Act or disability support pension under Part 2.3 of the Social Security Act.

Paragraph 52ZZZWA(2)(b) sets out further alternative requirements in order for a person to be considered the principal beneficiary. Subparagraph 52ZZZWA(2)(b)(i) provides that the principal beneficiary must have a disability that would qualify a sole carer, if the beneficiary had one, to carer payment or carer allowance under the Social Security Act. Alternatively, subparagraph 52ZZZWA(2)(b)(ii) sets out the sort of accommodation in which the person must live in order to be considered the principal beneficiary.

Paragraph 52ZZZWA(2)(c) provides that in order to be considered the principal beneficiary, the person must not be able to work. The purpose of this paragraph is to ensure that this Division only applies in relation to people who have the most severe disabilities and who are not able to work in an open, competitive workplace. For example, a blind person, who may qualify for disability support pension, or have a carer, would not be eligible if he or she had no other disability preventing him or her from working.

Subsection 52ZZZWA(3) provides that the Commission may, by legislative instrument, nominate a particular agreement made between the Commonwealth, States and Territories in relation to care, for the purposes of subparagraph 52ZZZWA(2)(b)(ii).

Subsection 52ZZZWA(4) provides that a person under 16 years of age can be the sole beneficiary of a special disability trust if he or she is a profoundly disabled child within the meaning of section 197 of the Social Security Act.

Subsection 52ZZZWA(5) provides that a trust stops being a special disability trust when the principal beneficiary dies. When the beneficiary dies, the special disability trust may be rolled over to another form of trust for the benefit of the residual beneficiary. This new form of trust will not be eligible for the favourable treatment, for the purposes of the Veterans' Entitlements Act, that is set out in this Division.

Subsection 52ZZZWA(6) provides that a trust is not a special disability trust for a particular principal beneficiary if there is already another special disability trust in existence for that principal beneficiary.

New section 52ZZZWB sets out the purpose requirements of a special disability trust. Subsection 52ZZZWB(1) provides that the sole purpose, during the beneficiary's lifetime, must be to meet the beneficiary's reasonable care and accommodation needs. This might include such things as purchasing a property for the person, or a right or interest in a property. However, it is not permissible for the trust to pay a parent or immediate family member for care provided by that parent or family member.

Subsection 52ZZZWB(2) provides that the trust may have purposes ancillary to meeting the beneficiary's reasonable care and accommodation needs that are necessary or desirable to facilitate that purpose. This allows money to spent on such things as investing money gifted to the trust, or paying for a professional trustee to administer the trust.

Subsection 52ZZZWB(3) provides that the reasonable care and accommodation needs of a beneficiary of a special disability trust must be decided in accordance with any guidelines under subsection 52ZZZWB(4). Subsection 52ZZZWB(4) gives the Repatriation Commission (the Commission) a discretionary power to make such guidelines.

If no guidelines exist under subsection 52ZZZWB(4), then the principal beneficiary's 'reasonable care and accommodation needs' will be interpreted in accordance with the policy of the Department of Veterans' Affairs (the Department).

New section 52ZZZWC sets out the requirements of the trust deed. Subsection 52ZZZWC(1) provides that, if there is a determination under subsection 52ZZZWC(2), then subject to subsection 52ZZZWC(3), a trust deed must comply with a determination under subsection (2).

Subsection 52ZZZWC(2) provides that the Commission may either determine the form of the trust deed required for a special disability trust; the provisions which must be included in the trust deed, and the form of those provisions; or provisions which cannot be included in the trust deed. It is anticipated that any determination made by the Commission will cover such matters as financial management and administration, amongst other things. If the Commission does not make a legislative instrument under subsection 52ZZZWC(2), then the requirements of the trust deed will be interpreted in accordance with the policy of the Department.

Subsection 52ZZZWC(3) provides that a person must not contravene a provision of the trust deed that is required by this section 52ZZZWC to be included in the deed.

New section 52ZZZWD sets out the requirements for trustees. The aim of this section is to protect the interests of the principal beneficiary who is a vulnerable person by reason of their disability. These strict requirements on who may be a trustee of a special disability trust ensure that there is either one arms-length professional trustee as the trustee of the trust or, alternatively, two or more trustees where this is not the case. A professional trustee would either be a trustee company, a public trustee, or another sort of professional acting as trustee, such as a solicitor or accountant, who is not a 'parent or immediate family member'.

Subsection 52ZZZWD(1) sets out various requirements, including that a trustee must be an Australian resident, has not been convicted of any offences under certain Acts, including the Veterans' Entitlements Act, the Social Security Act and the Social security Administration Act.

Subsection 52ZZZWD(2) provides that if the trustee is a corporation, then the requirements in subsection 52ZZZWD(1) apply in relation to each of the directors.

New section 52ZZZWE sets out the requirements for trust property. Subsection 52ZZZWE(1) provides that the trust's assets must not, apart from one exception, include any assets transferred by the beneficiary or the beneficiary's partner. The only exception is if the transferred asset is all or part of a bequest, or a superannuation death benefit, and the transferor received the bequest less than three years before transferring the asset to the trust. This is consistent with the intent of the measure, which is to allow parents and immediate family members to make private financial provision for their severely disabled family member.

The assets of a special disability trust are kept separate from other assets because assets of a special disability trust would be assessable assets but for this Division. Other monies held by the beneficiary, such as compensation, will continue to be treated in accordance with the rules set out in the Veterans' Entitlements Act.

Subsection 52ZZZWE(2) provides that the assets of the trust must not include any compensation that has been received by or on behalf of the principal beneficiary. If compensation money is put in a special disability trust, then the trust will lose its beneficial concessional treatment for the purposes of the Veterans' Entitlements Act.

Subsection 52ZZZWE(3) provides that the trust must not be used to pay an immediate family member or child of the beneficiary for the provision of care services to the beneficiary or for the maintenance of the beneficiary's accommodation.

Subsection 52ZZZWE(4) provides that the trustees must not, on behalf of the trust, purchase or lease property from an immediate family member or child of the beneficiary, even if the property is to be used for the accommodation of the beneficiary. The terms 'child' and 'property' are defined in subsection 52ZZZWE(5). 'Property' includes the right to accommodation for life in a residence and a life interest in a residence and is intended to cover such things as granny flats or other accommodation that is part of another home.

New section 52ZZZWF sets out the reporting requirements on the trustees of a trust. Subsection 52ZZZWF(1) provides that the trustees of the trust must, on or before 31 March each year, provide to the Commission written financial statements about the trust in relation to the financial year ending on 30 June of the previous year.

Subsection 52ZZZWF(2) sets out that these financial statements must be prepared by a person qualified as provided by a determination under subsection 52ZZZWF(4), and include the information required by a determination under subsection 52ZZZWF(4).

Subsection 52ZZZWF(3) provides that if a determination is made under subsection 52ZZZWF(4) that requires financial statements to include information of a stated kind, the financial statements must include that information.

Subsection 52ZZZWF(4) gives to the Commission the power to make a determination for the purposes of subsection 52ZZZWF(2).

New section 52ZZZWG sets out the audit requirements on a special disability trust. Subsection 52ZZZWG(1) provides that if the trustees receive a request for an audit under subsection 52ZZZWG(3), the trustees must within a reasonable time, cause an independent audit to be carried out, or if an audit had already been carried out, give a copy of that audit to the person making the request. The purpose of this is to reduce the burden on trustees by people making frequent requests for audits.

Subsection 52ZZZWG(2) sets out the audit period. The audit must be in relation to the financial year ending on the previous 30 June, or if a determination made under subsection 52ZZZWG(7) provides for a different period, that period.

Subsection 52ZZZWG(3) sets out the people who may request, in writing, that the trustees of the trust provide them with an audit. It includes the beneficiary, the beneficiary's immediate family members, the beneficiary's legally appointed guardian, or someone who has been acting as the beneficiary's guardian on a long-term basis, including as a financial administrator, or the Commission.

Subsection 52ZZZWG(4) provides that if an audit report is given to the trustees for the purpose of subsection 52ZZZWG(1), then the trustees must give a copy to the person requesting the audit, the person mentioned in paragraph 52ZZZWG(3)(c) and the Commission, unless either of those latter two people requested the audit.

Subsection 52ZZZWG(5) sets out who is qualified to prepare an audit. The people who are qualified are those who are set out in a determination made under subsection 52ZZZWG(7), or people approved by the Commission for this purpose.

Subsection 52ZZZWG(6) provides that if a determination is made under subsection 52ZZZWG(7) requiring audits to include certain information, then the audit must include that information.

Subsection 52ZZZWG(7) provides that the Commission may make a determination for the purposes of section 52ZZZWG.

New section 52ZZZWH deals with waiver of contravention with this Subdivision. Section 52ZZZWH allows all of the following outcomes:

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unqualified waiver, for example, for minor contraventions (see paragraph 52ZZZWH(2)(a) with no end time stated under paragraph 52ZZZWH(2)(b));

•

waiver subject to 'rectification' or other conditions (see paragraph 52ZZZWH(1)(b) or paragraph 52ZZZWH(2)(b)); and

•

delayed start of waiver to allow for a period of 'suspension' of status as a special disability trust (see paragraph 52ZZZWH(2)(a)(ii)).

Subsection 52ZZZWH(1) provides, in relation to a trust that would be a special disability trust apart from a failure to comply with a requirement of this Subdivision, that trust is not prevented from being a special disability trust if the Commission gives the trustees a written waiver notice requiring them to comply with certain conditions. This means that subsection 52ZZZWH(1) limits the application of the waiver provisions to trusts that have already, by operation of this Subdivision, and not by any waiver granted by the Commission, 'qualified' as special disability trusts.

Subsection 52ZZZWH(2) provides the period during which a waiver notice has effect.

Subsection 52ZZZWH(3) provides that if guidelines are made under subsection 52ZZZWH(4), then a waiver notice must be made in accordance with the guidelines.

Subsection 52ZZZWH(4) gives the Commission the power to make, by legislative instrument, guidelines in relation to waiver notices.

Subdivision B - Attribution of income of special disability trusts

New section 52ZZZWI deals with the attribution of income of special disability trusts. Subsection 52ZZZWI(1) provides that for the purposes of the Veterans' Entitlements Act, an amount of income derived by a special disability trust is not taken to be income received by any individual. That is, it is not the income of the beneficiary or any immediate family member who has made a gift to the trust, and will not affect assessment of their income for the purposes of the Veterans' Entitlements Act. This is different to the normal rules applied under the Veterans' Entitlements Act in relation to the income of a trust, which is usually attributed to the person in control of the trust or the beneficiary.

Subsection 52ZZZWI(2) provides that section 52ZZZWI has effect despite Subdivision G of Division 11A of Part IIIB, which deal with attribution of income of controlled private companies and controlled private trusts, and any other provisions of the Veterans' Entitlements Act.

New section 52ZZZWJ deals with income amounts from special disability trusts. For example, if a distribution from the trust was used to pay for rental accommodation for the principal beneficiary, then consideration was provided for that trust distribution. Consequently, that trust distribution is not considered to be income of the principal beneficiary for the purposes of the Veterans' Entitlements Act. Such things that are purchased must be for the principal beneficiary's 'reasonable care and accommodation needs'.

Subdivision C - Attribution of assets of special disability trusts

New section 52ZZZWK deals with attribution of assets of special disability trusts. Subsection 52ZZZWK(1) provides that for the purposes of the Veterans' Entitlements Act, the assets of a special disability trust are not to be included in the assets of the principal beneficiary of the trust.

However, subsection 52ZZZWK(2) provides that section 52ZZZWK does not apply to the value of assets which exceed the trust's asset value limit.

Subsection 52ZZZWK(3) provides that the asset value limit of a special disability trust is $500,000. In accordance with new item 8A of section 59B, set out in item 31 above, this amount will be indexed in accordance with CPI.

Subsection 52ZZZWK(4) provides that the value of any right or interest of the trust in the beneficiary's principal home is disregarded. This is in accordance with the normal rules applied under the Veterans' Entitlements Act, under which a person's principal home is exempt from the assets test.

Subsection 52ZZZWK(5) provides that section 52ZZZWK has effect despite Subdivision H of Division 11A of Part IIIB, which deals with attribution of assets of controlled private companies and controlled private trusts, and any other provisions of the Veterans' Entitlements Act.

Subdivision D - Transfers to special disability trusts

New section 52ZZZWL deals with the effect of transfers made to special disability trusts. Subsection 52ZZZWL(1) sets out the conditions that must be met in order for a transfer of an asset to a special disability trust not to be taken to be a disposal of an asset. These conditions are:

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paragraph 52ZZZWL(1)(a): the asset is transferred by an immediate family member of the beneficiary;

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paragraph 52ZZZWL(1)(b): the person who transferred the asset, or his or her partner, is of age pension age (within the meaning of the Social Security Act) and receiving a social security pension; or is receiving a service pension and has reached pension age; or is receiving income support supplement and has reached qualifying age within the meaning of subsection 45A(2);

•

paragraphs 52ZZZWL(1)(c) and (d): the transfer must be without consideration and unconditional;

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paragraph 52ZZZWL(1)(e): the value of the transferred asset must be less than $500,000; and

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paragraph 52ZZZWL(1)(f): adding the value of that transferred asset to the value of the transferred assets which have received the concession treatment dealt with by this Division, does not exceed $500,000.

Subsection 52ZZZWL(2) provides that section 52ZZZWL has effect subject to sections 52ZZZWM and 52ZZZWP.

Subsection 52ZZZWL(3) defines the terms 'other special disability trust' and 'value' for the purposes of section 52ZZZWL. The term 'other special disability trust' will include a special disability trust as defined by the Social Security Act. The 'value' of an asset transferred to a special disability trust means the market value of the asset at the time of the transfer. This definition is the same as the definition of 'value' set out in subsection 52ZZZWM(4).

New section 52ZZZWM deals with how a transfer is treated when more than $500,000 worth of assets have been transferred to a special disability trust. Subsection 52ZZZWM(1) provides that even if a transfer to a special disability trust would receive the concessions set out in this Division, but for the fact that $500,000 had already been transferred to the special disability trust, that transfer is still considered to be a disposal of an asset. As a result, that disposal will be held against the person for the purposes of the Veterans' Entitlements Act.

However, if less than $500,000 had previously been transferred to the special disability trust, the amount of the disposal of the asset is only so much of the value of that asset which means the total value of the special disability trust's assets are greater than $500,000.

For example, a father, who is eligible for the concessions under this Division, transferred $300,000 to his son's special disability trust. Later, the son's grandfather, who is also eligible for concessions under this Division, transferred $300,000 to the special disability trust. The grandfather would be held to have disposed of an asset worth $100,000.

Subsection 52ZZZWM(2) applies to the situation where section 52ZZZWL would have applied to the transfer of an asset, but for the fact that the sum of the value of all exempt transfers exceeds $500,000. In that case, the amount of the gift that brings the total amount of transfers to the special disability trust up to $500,000 receives, for the purposes of the Veterans' Entitlements Act, the concessions set out in this Division. In the example set out above, the grandfather receives the concessions on $200,000 of the $300,000 he transferred to his grandson's special disability trust.

Once $500,000 worth of assets have been transferred to the special disability trust, it is possible to use the normal gifting rules to make gifts to the special disability trust.

Subsection 52ZZZWM(3) provides that section 52ZZZWM has effect subject to section 52ZZZWP.

Subsection 52ZZZWM defines the terms 'other special disability trust' and 'value'. The definitions are the same as the definitions of 'other special disability trust' and 'value' set out in subsection 52ZZZWL(3).

New section 52ZZZZWN deals with the circumstances when gifts are made to the special disability trust by the principal beneficiary's immediate family members who are not of pension age or qualifying age. Subsection 52ZZZWN(1) provides that if an immediate family member transfers assets to the special disability trust, and at the time of the transfer, neither that person, nor his or her partner, had reached pension age or qualifying age, then he or she is taken to transfer the assets to the trust at the time when he or she, or his or her partner, reaches pension age or qualifying age. In accordance with the intention of this measure, this enables immediate family members to transfer assets to the special disability trust, in order to plan for the principal beneficiary's welfare, and take advantage of the beneficial treatment under this Division at some later date.

Subsection 52ZZZWN(2) provides for the order in which transfers to a special disability trust will be taken to have been made. If transfers were made by immediate family members on the same day, then the order is determined by normal rules, and not buy any special rules set out in this Subdivision.

The effect of sections 52ZZZWM and 52ZZZWN is that the first $500,000 of gifts, made by immediate family who are eligible for the concession, to the special disability trust, receives the gifting concession. This allows the special disability trust to hold assets in excess of the $500,000 and allows immediate family members to have access to the full $500,000 concession amount. For example:

•

If an immediate family member gifts $200,000 to the special disability trust and is eligible for, and claims, the gifting concession, then someone else gifts $300,000, but does not claim the gifting concession, a parent or immediate family member can make further gifts up to $300,000 and still receive the concession.

•

A parent aged 58 gifts $500,000 to a special disability trust. This parent is not able to receive the gifting concession, as he or she is not eligible for service pension. Another parent already in receipt of service pension wants to gift $500,000. The concession would apply to the second gift of $500,000 from the parent in receipt of service pension. The parent aged 58 would not receive any concession for their gift when they claim payment at veteran pension age.

Section 52ZZZWO provides that where the principal beneficiary of the trust, or his or her partner, unconditionally transfers an asset to their special disability trust and receives, or is entitled to, no consideration for the transfer then this transfer will not be taken to be a disposal of an asset for the purposes of section 52E of the Veterans' Entitlements Act.

New section 52ZZZWP deals with what happens when special disability trusts cease. This may occur, for example, in accordance with section 52ZZZWC, if the trust deed does not comply with the requirements of this Division, or compensation money is transferred to the special disability trust in contravention of section 52ZZZWE. The situation where a trust ceases to be a special disability trust because of the death of the principal beneficiary is dealt with in subsection 52ZZZWP(3) below. Paragraphs 52ZZZWP(1)(b) and (c) provide that if a person had transferred an asset to the special disability trust during the period of five years before the cessation of the trust, and sections 52ZZZWL, 52ZZZWM or 52ZZZWO applied to the transfer, then the transfer is taken to be a disposal of an asset that occurred at the time of the transfer.

Subsection 52ZZZWP(2) sets out a formula for determining the amount of the disposal. This is to deal with the situation where the value of the special disability trust's assets is insufficient to refund the full value of transfers to everyone who transferred assets to the trust. It includes definitions of a number of terms used in the formula. For example, a grandfather has transferred $300,000 to his grandson's special disability trust. In total, $600,000 in assets has been transferred. At the time when the trust ceases to be a special disability trust under subsection 52ZZZWP(2), $50,000 has been spent on the grandson's care. Because the value of the asset the grandfather transferred is less than $500,000, there is no subsection 52ZZZWM(2) amount. According to the formula in subsection 52ZZZWP(2):

$300,000 x $550,000 = $275,000

$600,000

Subsection 52ZZZWP(3) deals with the situation when a special disability trust ceases to exist, or ceases to be a special disability trust, because the principal beneficiary dies, in accordance with subsection 52ZZZWA(5). In that case, the value of the asset that is held as a deprived asset against the person who transferred the asset is the value of the amount of the asset which is not returned to the transferor. The effect of subsection 52ZZZWP(3) is thus opposite to the effect of subsection 52ZZZWP(1), where the value of the asset which is returned to the transferor is held to be the amount of the deprivation. For example, in the previous example, $275,000 of the grandfather's $300,000 is returned to him. He is taken, therefore, to have disposed of $25,000.

Subsection 52ZZZWP(4) provides that this section 52ZZZWP does not affect the application of sections 52ZZZWL, 52ZZZWM or 52ZZZWO to the transfer prior to the trust ceasing to be a special disability trust.

New section 52ZZZWQ provides that this Subdivision (other than section 52ZZZWN) has effect despite Subdivision B of Division 11 of Part IIIB and any other provisions of the Veterans' Entitlements Act. Subdivision B of Division 11 of Part IIIB deals with disposal of assets and provides that if a person disposes of assets for less than their full value, then a person will be treated, for the purposes of the Veterans' Entitlements Act, as if they still hold an asset equal to the value of the asset disposed of, less any consideration received. Section 52ZZZWQ provides, therefore, that the disposal of assets rules will not be held against a person if they transfer an asset to a special disability trust.

Item 30 inserts into section 59A a new item 13A into the table after item 13. This item sets out how special disability trusts will be described in the legislation, both in full and in abbreviated form, and the sections which refer to special disability trusts.

Item 31 inserts into section 59B a new item 8A into the table after item 8. Section 59B deals with how amounts under Division 18 of Part IIIB are indexed in accordance with the CPI. The inclusion of this item ensures that the value of the assets test exemption limit of the special disability trust will be indexed in accordance with CPI.

This item sets out the indexation day, reference quarter, base quarter and rounding based for special disability trusts. The following example shows how indexation of the assets test exemption limit might affect a special disability trust (Note: the CPI figure used is a sample only, and is not the actual CPI for 1 July 2007).

Item 32 inserts after subsection 59C(2) a new subsection 59C(2A), which confirms that the first indexation of item 8A (inserted by item 31 above) will take place on 1 July 2007.

Item 33 sets out transitional arrangements for trusts created before 20 September 2006.

Subitem (1) gives the Commission the power, in relation to trusts created before 20 September 2006, to exempt certain trusts from the requirements of Subdivision A of Division 11B of Part IIIB of the Veterans' Entitlements Act, the provisions of which are set out in this Schedule. The effect of this exemption is that the trust is not prevented from being a special disability trust. In order to exempt a trust from a certain requirement, the Commission must give the trustees a written notice of the exemption, and, if the notice requires the trustees to comply with any matter, that compliance must occur before the time stated in the notice, which would be 30 June 2007, at the latest.

Subitem (2) provides that a period referred to in an exemption notice for the purposes of paragraph (b) or sub-item (1) must end at or before 30 June 2007.

Subitem (3) sets out that an exemption notice has effect from the start of 20 September 2006, or the time stated in the notice, which is after that day, until the end of 30 June 2007, or the time stated in the notice which is before that day.

Subitem (4) provides that if guidelines are made under subitem (4) in relation to exemption notices, then any exemption notices made must be in accordance with those guidelines.

Subitem (5) gives the Commission power to make guidelines for deciding what is substantial compliance.