CHAPTER 2
BARRIERS TO THE ESTABLISHMENT OF SPECIAL DISABILITY TRUSTS
2.1
There are several key barriers to the establishment and use of SDTs
which contribute to why few families with dependents with disabilities have established
SDTs since they were introduced. Witnesses and submissions consistently
highlighted problems with the eligibility requirements for SDTs, issues around
the provisions for contributing to the trusts, the heavy tax regime applied to
the trusts and the limitations on the allowed uses of trust funds. Taken
together, these barriers were major disincentives for families that might
otherwise seek to establish a SDT.
2.2
These key barriers are discussed in this chapter of the report. Other
concerns relating to the operation of the trusts and to wider support for
families caring for dependents with disabilities are discussed in the next
chapter.
Eligibility restrictions
2.3
SDTs were introduced to assist those families caring for someone who
was, and would continue to be, unable to provide for themselves. During the
second reading of the Bill which introduced SDTs, then Senator the Hon Kay Patterson
noted the measure was 'meant for people who have limited or no testamentary
capacity and who cannot manage their own affairs'.[1]
2.4
To be eligible to be a principal beneficiary of a SDT, a person must
meet the requirements set out in section 1209M of the Social Security Act
1991. A beneficiary of a SDT must be:
a person who has
reached 16 years of age:
- whose level of impairment would qualify the person for Disability
Support Pension or who is already receiving a Department of Veterans' Affairs
Invalidity Service Pension or Department of Veterans' Affairs Invalidity Income
Support Supplement, and
- who has a disability that would, if the person had a sole carer,
qualify the carer for Carer Payment or Carer Allowance or the person is living
in an institution, hostel or group home in which care is provided for people
with disabilities, and for which funding is provided (wholly or partly) under
an agreement between the Commonwealth and states and territories, and
- who has a disability as a result of which he or she is not
working and who has no likelihood of working for a wage that is at or above the
relevant minimum wage.
2.5
A child under 16 years of age may be the beneficiary of a SDT if they meet
the definition of a profoundly disabled child in section 197 of the Social
Security Act 1991. Centrelink is responsible for assessing the eligibility of
persons to be beneficiaries of proposed SDTs. A beneficiary eligibility
assessment must be completed by Centrelink prior to a SDT being established
2.6
While the eligibility requirements for potential beneficiaries of SDTs are
intended to target the concessions to those with severe disability and high
level care needs, a number of submissions raised concerns that the criteria
were operating to inappropriately exclude some people. For example the Trustee
Corporations of Australia acknowledged that while SDTs are being offered on a
targeted basis, the definition of 'severe disability' may be overly-restrictive,
limiting the number of people who might potentially benefit from the
concessions.[2]
The Activ Foundation also argued that the eligibility criteria should be
broadened to allow family members of people with moderate disability to
establish a SDT. They noted that many people have 'a level of disability that
does not qualify them for government funding, but is nonetheless at a level
that means that they lack the management, planning and self care skills
necessary to look after themselves...'.[3]
A number of issues regarding the eligibility requirements were raised including
the carers allowance, intellectual disabilities and mental illnesses, institutional
accommodation, minimum wages and possible reform to eligibility requirements.
Carer allowance requirement
2.7
The requirement that the beneficiary of a SDT must have a disability
that would, if the person had a sole carer, qualify the carer for the carer payment
or carer allowance was seen as too restrictive by many submitters. For example Mr
Spicer, the former chair of the advisory group, noted that while the existing
assessment process was important 'it may exclude some who might not require the
degree of care needed to qualify for a carer payment or carer allowance but for
whom privately funded support would be the difference between true independent
living and ongoing family support or supervision'.[4]
2.8
The former Minister for Family and Community Services, the Hon Dr Kay
Patterson noted that in using the carer payment or carer allowance the intention
was to define eligibility to be a SDT beneficiary in such a way that it
reduced, as much as possible, the need for further assessment. However she gave
the example of a family who had to have further assessments because they had
not realised they were eligible for the carer allowance, which involved two
visits to a doctor and three visits to Centrelink.[5]
She stated:
It seems to me that if you are eligible for a disability pension
and you are receiving Commonwealth assistance in a business service, supported
employment or day care, it would be hard to say that that person was not
eligible to be able to have a special disability trust...It would seem to me that
one of the things that are really inhibiting people is that a lot of people
have not applied for carers allowance...[6]
2.9
The committee was also concerned to hear that families were having
additional burdens placed on them through assessments for the carer allowance
or carer payment before they could be considered eligible for a SDT. Mr and Ms Walter
noted that the eligibility requirements for SDTs were forcing families to apply
for the carer allowance, a 'payment they may have been entitled to receive but
not sought to receive in the past.'[7]
Mr West argued that the SDT application process needed to be less bureaucratic.
He noted his son, who has cerebral palsy and had received a disability support
pension for 22 years would still need to submit doctor and health service
reports to verify his condition to apply for a SDT.[8]
Similarly Ms Johnstone commented that the carer allowance forms 'do very little
to acknowledge that a person with a significant disability may still have well
developed independent living skills, physically able, but nonetheless need the
security of SDT...'.[9]
Intellectual disabilities and mental
illness
2.10
Several submitters noted that the eligibility requirements for
beneficiaries of SDTs appeared to preference people with physical disabilities
rather than those with intellectual disabilities or with mental illnesses.[10]
This accords with feedback which FaHCSIA has received in relation to SDTs.
Many people with disability, such as those
with mental illness or impairment (for example autism, schizophrenia, bipolar
or obsessive compulsive disorders) may not require care on a daily basis yet
they may require ongoing care and supervision in relation to their financial
and administrative affairs. At present, people in these categories may not pass
the level of care criterion and therefore may not be eligible to be a
beneficiary of a Special Disability Trust.[11]
2.11
In particular, concerns regarding the application process for the carer
payment were raised. Mr and Mrs Raine noted that there are not appropriate
forms for applying for a SDT from Centrelink. They commented on the situation
of their son Steven:
Steven suffers a permanent medical condition, a pervasive
developmental disorder, which has been rigorously assessed and legitimately
qualifies him for a Disability Support Pension, but this cannot be demonstrated
on the 'Carer Payment' application forms which give very little scope to
describe psychiatric / psychological impairment.[12]
2.12
The Public Trustees stated that anecdotally most inquiries in relation
to SDTs are from the families of individuals with mental health disabilities,
rather than physical disabilities. They also highlighted the difficulties in
relation to eligibility:
Many persons with a severe mental health disability will meet
the pension/support supplement requirements. However, due to the particular
nature of many of the more common mental illnesses, one or more of the other
criteria may not be fulfilled in many such cases. For example, the person may
fail on the requirement that they live in a government-funded institution or
qualify for a carer, or they may have a likelihood of working, at some point in
time, for an above-minimum wage.[13]
2.13
Some submitters highlighted that people with disability with a
significant degree of impairment to management, planning, judgement and/or
decision making abilities would significantly benefit from SDTs, but were not
eligible to be beneficiaries as their disabilities are not of a magnitude to be
defined as 'severe'.[14]
Institutional accommodation
2.14
The eligibility requirements in sub-section 1209M(2)(b)(ii) of the Social
Security Act 1991 specifies that where the person with disability is cared
for within an institutional/hostel/group home setting, that accommodation must
be one that is funded, wholly or partly, under an agreement between the
Commonwealth, states and territories. However FaHCSIA noted this may exclude people
who live in accredited supported accommodation that is not funded publicly
under such an agreement, such as Supported Residential Services in Victoria.[15]
2.15
Ms Hughes of Carers Australia also told the Committee this was also a
barrier for families starting to think creatively about housing options for family
member with disabilities. She argued that SDTs should be able to be used for
different housing options, including independent housing or investment in
unstaffed housing cooperatives.[16]
The eligible uses of SDTs are discussed further later in this chapter.
Minimum wage
2.16
Concerns were also raised that people with disability who are employed
in disability business services and who might receive award wage may be
excluded from eligibility. For example Pave the Way, Mamre Association argued
that:
The definition of 'severe disability' is
too restrictive - there are many families who might want to set up a trust fund
for their family member with a disability who does not qualify because they
receive award wages, if only part-time. There are a number of people working in
supported employment who are in receipt of award wages.[17]
2.17
The Trustee Corporations of Australia noted that providing for people
with mental illnesses has particular difficulties over and above those for a
person with physical disability. Due to the fact that mental illness can be episodic
and sufferers may do part time or casual work they may find it difficult to
quality for a SDT.[18]
Possible eligibility changes
2.18
Given the limited uptake of SDTs to date, the committee received broad
support for more flexible eligibility rules concerning who could be a
beneficiary of a SDT. However there was little agreement on the detail of how
this should be done. National Disability Services acknowledged 'that identifying
objective alternative criteria for determining eligibility will not be easy'.[19]
Dr Baker of National Disability Services acknowledged that while expanding
access to SDTs also risked expanding the misuse of those trusts but argued the
greater risk was in deterring people who might be willing and able to set aside
assets for the care of a person with a disability. He noted:
In many of these cases the choice really is between a person
with a disability being wholly dependent on government or partially dependent,
with the supplementation of a special disability trust.[20]
2.19
A number of submissions suggested that SDT eligibility should be open to
anyone who qualified for a disability support pension.[21]
The National Council on Intellectual Disability recommended that all people be
eligible to be the beneficiary of a SDT or 'at a minimum that it applies to all
person who receive a full or part DSP, but that the ABS definition of needing
assistance in one or more daily activities be made the criteria.[22]
Mr Pattison of the National Council on Intellectual Disability argued that as
long as people are eligible for the disability support pension, they should be eligible
for a SDT. He stated:
I think it becomes very hard to set rules for who is in and who
is out, so I would just set the rule, ‘Everyone in.’[23]
2.20
Similarly Sunnyfield Independence argued that the current restrictions
discriminate against people with a disability that do not meet the SDT
definition of 'severe disability' and recommended that all people with a disability
be able to access a SDT.[24]
2.21
The Public Trustees suggested that consideration be given to amendments
that would increase the prospect of persons with mental health disabilities
being eligible for a SDT. They suggested options could include different criteria
for persons with such disabilities or requiring a qualifying pension, plus one
or more (but not necessarily both) of the carer/institution requirement; and the
inability-to-work requirement. Others such as Winaccom suggested that any
person with an intellectual disability which entitles that person to a
disability support pension should be able to access a SDT without reference to
carer payment or carer allowance eligibility.[25]
2.22
Mr and Mrs Walter outlined a number of options to extend eligibility to
SDTs. These included allowing persons eligible for a special disability service
funded through the Commonwealth State Territory Disability Agreement to be
eligible or that eligibility assessments should be made through an independent
panel.[26]
2.23
While agreeing that a more flexible eligibility test could be
considered, Mr Ian Spicer argued that 'every effort should be made to utilise
an existing assessment test rather than creating a new one'.[27]
He noted the burden of multiple assessments on people with diablities and their
familes and carers.[28]
Similarly the Hon Dr Patterson noted that 'the intention was to make it easy
for genuine applicants to qualify' for SDTs and suggested that criteria be
relaxed so that 'older parents and carers do not have to jump through
interminable hoops'.[29]
Committee comment
2.24
The committee agrees that the eligibility requirements for a person with
a disability to be a beneficiary of a SDT should be made more flexible. As a
number of witnesses noted during the inquiry, it is difficult to construct
objective eligibility requirements which are fair to all. The committee is also
conscious that people with disabilities and their families and carers are
already subject to many assessments and does not wish to add to that burden.
2.25
The evidence the committee has received indicates that the requirement
in section 1209 (b) (i) and (ii) of the Social Security Act 1991 are the
key problem for SDT eligibility. This is the requirement that a beneficiary of
a SDT must have a disability that would, if the person had a sole carer,
qualify the carer for the carer payment or carer allowance or that the person
must be living in an institution, hostel or group home in which care is
provided for people with disabilities, and for which funding is provided (wholly
or partly) under an agreement, between the Commonwealth, the states and the territories.
2.26
Removing this requirement would mean that to be eligible for a SDT a
person would still need to qualify for a disability support pension (or
appropriate veteran's entitlement) and would need to have a disability as a
result of which he or she is not working and would have no likelihood of
working for a wage that is at, or above, the relevant minimum wage.
2.27
The committee is also concerned that the current eligibility criteria
are not capturing some people with intellectual disabilities or mental
illnesses. The committee considers that SDTs are an appropriate mechanism to
assist these individuals. The committee is recommending that changes be
developed to the criteria to allow persons with intellectual disabilities or
mental illnesses to become beneficiaries of SDTs. These criteria should be
developed by FaHCSIA in conjunction with peak disability bodies.
Recommendation 1
2.28
The committee recommends that the special disability trust eligibility requirements
in section 1209M of the Social Security Act 1991 be amended to:
- include eligibility requirements which effectively enable those
with intellectual disabilities or mental illnesses to become beneficiaries of
special disability trusts.
Contributions
Capacity to contribute
2.29
Several submissions noted that families of a person with a disability
frequently have very limited to capacity to contribute to SDTs.[30]
The National Council on Intellectual Disability noted that SDTs only address
the needs of a minority of families living with disability and that 'the
majority of families do not have excess resources to set aside for the future'.[31]
This echoed feedback received by FaHCSIA from consultations in 2007 that
indicated many parents, because of the costs of disability and caring, may not
have accumulated many assets during their lifetime and may not be able to
financially provide for their child’s future without significant government
assistance.[32]
2.30
The Kew Cottages Parents' Association
argued that the base threshold needed to make a SDT worthwhile was unachievable
for the majority of parents. They indicated that the minimum amount required to
counteract the costs and restrictions associated with a SDT was in the order of
$200,000 and that an extremely low number of parents would be able to place
this sum or more in a special needs trust for their child.[33]
The committee also received evidence that many parents with disabled children may
be including SDTs in their wills. Many of these testamentary trusts will be
able to incorporate the assets of the estate.
Contributions by beneficiary
2.31
Once a SDT has been established anyone can contribute any amount,
subject to a number of exceptions. The SDT beneficiary or their partner may not
contribute to SDT, but the beneficiary may transfer to the SDT any assets that
are received as a bequest or superannuation death benefit not more than three
years after receiving the bequest or benefit. FaHCSIA noted that the reason for
this restriction is that SDTs were created to allow for immediate family
members to make provision for the beneficiary and were 'not intended to allow
the beneficiary to move their assessable assets for social security purposes
into an unassessable environment'.[34]
2.32
However the Winaccom Association argued it was 'very unfair'
beneficiaries could not contribute funds to a SDT given that SDT funds were
currently only able to be used for accommodation and special needs care.[35]
Mr Gresswell of the Winaccom Association argued:
...in relation to funds contributed to the special disability
trust, a beneficiary of a special disability trust should be allowed to
contribute funds either from superannuation or own savings to the trust as long
as the trust utilises those funds for the purposes of care and accommodation
for the beneficiary.[36]
Concessional asset limit on SDTs
and indexing
2.33
There is no limit on the value of assets that can be held in a SDT.
However where assets in the SDT exceed the concession limit, they are
assessable for social security income support purposes. The concession limit
was initially set at $500,000 on 20 September 2006 and is annually indexed to
the Consumer Price Index (CPI). On 1 July 2008 the concession limit was $532,000.
2.34
There was broad support from submitters supporting the recommendation
that the concessional limit on trust assets should be approximately doubled to
$1 million.[37]
The consensus was that there was no clear justification for the current limit
and that the limit was too low given the current and likely future costs of
care and accommodation for a person with a disability for a long period. Mr Spicer
commented:
I think if you are really looking at the provision of care or
support for a person with a significant disability the amount of money that
would have to be set aside is well in excess of that which might be earned by a
$500,000 trust. It needs to certainly be more than that and it appeared in the
submissions and the consultation that $1 million was getting closer to the
mark.[38]
2.35
Sunnyfield Independence questioned the validity of indexing the concession
limit in line with CPI. They argued:
If the trustee accumulates a surplus of income over expenses in
the SDT for the future care of the beneficiary with a disability... then over
time the disability support pension may be reduced or lost if the accumulated
surpluses exceed the amount of CPI indexing.
2.36
Instead of CPI, they recommended the appropriate indexing factor would
be the Official Cash Rate which is a closer proxy for the prudent investment
returns a trustee should be striving to achieve for the beneficiary of the
trust.[39]
Gifting concession
2.37
The gifting concession is available to immediate family members of the
beneficiary who are of pension age and make a contribution to the SDT. The
concession is an exemption for contributions to the SDT of up to the value of
$500,000 from the usual social security or veterans' entitlement rules relating
to making gifts or disposal of assets.
2.38
The current definition of 'immediate family member' includes: natural
parents; legal guardians (that is, a person who is, or was, the legal guardian
of the person with severe disability while that person was under 18 years of
age); adoptive parents; stepparents; grandparents; and siblings (that is,
brother, sister, half-brother, half-sister, adoptive brother, adoptive sister,
step-brother or step-sister).[40]
2.39
Mr Ward of Pave the Way, Mamre Association noted that immediate family
members are not the only individuals who make financial contributions to
support people with disabilities and that extended family members and close
friends often also provide support.[41]
The National Council on Intellectual Disability highlighted that the definition
of immediate family member does not include other people who may have a special
relationship with the person with a disability, such as aunts, uncles and
godparents. They recommended that the definition be extended or removed so
anyone can contribute to a SDT.[42]
2.40
Unlike the SDT concessional asset limit, the gifting concession limit is
not currently indexed. National Disability Services recommended that the
gifting concession limit be indexed in line with the indexation rate applied to
the asset limit of the SDT.[43]
2.41
Some witnesses argued that further incentives could be offered to
encourage contributions to SDTs. Several submissions suggested or recommended
that SDT contributions could be made tax deductible.[44]
Mr Ward also noted that families were contributing to SDTs with 'post-tax
money that they are saving'.[45]
Mrs Breheny told the committee:
If people are going to take on the whole and sole care of their
family member with disability and not apply to the government for funding I do
not see why it should not be tax deductible.[46]
2.42
Mr Pattison of the National Council on Intellectual Disability noted
that if a person with a disability were receiving support from an organisation
that was eligible to be deemed a charity, donations to that support
organisation would be tax deductible. However he also noted that this option
had received limited support from some families when it had been raised
previously.
When we raised that as an option right back at the very
beginning, some families said, ‘No, we don’t want that because we don’t want to
be seen as a charity. We don’t want our son and daughter to start having all
these charity rules and everything else put upon them.’ [47]
Compensation awards
2.43
Under the current arrangements the assets of a SDT must not include any
compensation received by or on behalf of the beneficiary.[48]
The FaHCSIA information booklet on SDTs, Special Disability Trusts: getting
things sorted, notes that this rule is 'intended to preserve the existing
treatment of compensation payments'.[49]
The rule relates to a general social security principle that people who are
receiving compensation for loss of income should not also receive income
support from the government for the same period.[50]
2.44
Nonetheless, some submissions recommended that people with disabilities
(who otherwise meet the beneficiary requirements) should be able to contribute
compensation payments into SDTs. National Disability Services noted that the favourable
arrangements for the treatment of the income and assets of a SDT could, if
permitted, encourage an individual requiring ongoing support services to make
some provision for that support to be financed.[51]
Ms Hughes of Carers Australia commented:
I think we need to look at the increasing numbers of young people
who suffer acquired brain injury through catastrophic injury. Those people will
need to be cared for in some way for the rest of their lives, and their levels
of care and therapy will be very high for different periods in their lives. I
think that is a group that could really benefit from a special disability trust
if some of those compensation payments could be put into it.[52]
2.45
The Public Trustees noted that they were often the trustees of choice for
courts in matters related to accidents and injuries suffered by people involved
in motor vehicle accidents, workers compensation and personal injury cases.
They highlighted that the NSW State Government has capped awards for workers
compensation, motor vehicle compulsory third party personal injury and that due
to capping 'awards are not always sufficient to provide full and adequate care
and because the award may be over the Centrelink threshold the beneficiary is
not eligible for a pension'. If the award was able to be contributed to a SDT,
a pension may be available to the beneficiary.[53]
Committee comment
2.46
Given the high costs of caring for a person with a disability, both
currently and into the future, the committee agrees that the current
concessional asset limit for SDTs is too low. The committee recommends that the
limit be increased to $1 million and annually indexed according a rate which
reflects ordinary investment returns or the Consumer Price Index whichever is
greater.
Recommendation 2
2.47
The committee recommends that the asset value limit for special
disability trusts in section 1209Y of the Social Security Act 1991 be increased
to $1,000,000 and annually indexed according to a rate which reflects ordinary
investment returns or the Consumer Price Index whichever is greater.
2.48
The committee agrees that the gifting concession should be indexed to
the rate applied to the special disability trust asset value limit. The
committee supports measures to encourage the community to assist with the care
and accommodation of people with a disability. However the committee was
concerned that some proposals to extend the definition of 'immediate family
member' would expand the eligibility for the gifting concession
inappropriately. In the opinion of the committee, if after the adoption of the
recommendations in this report there is no improvement in the uptake of SDTs in
the next two years, options to expand eligibility for the gifting concession
should be reviewed.
Recommendation 3
2.49
The committee recommends that the provisions relating to the special
disability trust gifting concession be amended to annually index the gifting
concession limit to the rate applied to the special disability trust asset
value limit.
Recommendation 4
2.50
The committee recommends that, if after the adoption of the
recommendations in this report there is no improvement in the uptake of special
disability trusts after two years, options to expand eligibility for the
gifting concession should be reviewed.
Tax on trust assets and earnings
2.51
The tax arrangements which currently apply to SDTs diminish their value
for carers and people with disabilities. The application of capital gains tax
to assets transferred to SDTs and to the sale of a beneficiary's primary
residence and the high rate of tax applied to trust earnings were of particular
concern. These issues are discussed below.
Capital gains tax payable
2.52
FaHCSIA described two possible capital gains tax events in relation to
SDTs:
- If a parent purchased a property a number of years ago (after 20
September 1985) and wants to place that property in the Special Disability
Trust as the beneficiary's principal place of residence, the property would be
subject to capital gains tax.
- Unlike any other owner-occupied property, a Special Disability
Trust which owns the beneficiary's principal place of residence incurs capital
gains tax if that residence is sold, for example, in order to purchase
accommodation for the beneficiary elsewhere so as to be close to services.[54]
2.53
Mr and Mrs Wilson and Mr Gresswell, members of Winaccom Association,
emphasised that the first of these capital gains situations is a 'big drawback'
to parents making financial provisions for their son or daughter during their
lifetime, as they are likely to incur significant capital gains tax.[55]
Similarly members of Autism Aspergers Advocacy Australia observed that most
families cannot afford the capital gains payable on stocks and the stamp duty
on property if they are transferred into an SDT. They considered that waiver of
capital gains and stamp duty on assets transferred into an SDT would 'free up
significant opportunities' for families to contribute to the trusts.[56]
Submitters also suggested that allowing tax issues to be deferred until the
trust is wound up would alleviate the current disincentives.[57]
2.54
Mr and Mrs Walter recommended that:
If it can be shown that a property was purchased solely for the
purpose of accommodation for a disabled family member and held in a trust or in
the name of the purchaser and never used as a rental investment property it
should be able to be transferred to a SDT without incurring Capital Gains Tax.[58]
2.55
The committee received one example where an Australian Taxation Office
private ruling had provided exemption for capital gains tax for the transfer of
property from an established trust to a SDT.[59]
2.56
The second possible instance of capital gains tax, the sale of a
beneficiary's principal residence, was a particular source of consternation
among submitters and witnesses to the inquiry.[60]
Witnesses pointed to the inherently discriminatory practice of applying capital
gains tax to the principal residence of a person with disability, whose
residence is owned by a SDT, but not to the principal residence of any other
members of the community. Mr and Mrs Walter asked:
Do you believe it is fair, just and reasonable that some people
with disabilities have been singled out to be the only members of our community
to pay Capital Gains Tax on the sale of their place of residence?[61]
2.57
SDTs are also liable for state and territory taxes and levies associated
with transfer or acquisition of property, such as land tax, stamp duty and
emergency levies. The FaHCSIA noted that the Western Australian Government
offers stamp duty concessions to trusts acquiring property on behalf of
disabled beneficiaries.[62]
Tax on trust income
2.58
Income from SDTs is taxed in the same way as other trusts. The tax-free
threshold that applies to individual income does not apply to income from an
SDT. Therefore, all unexpended SDT income is taxed and it is taxed at the top
marginal rate, currently 46.5 per cent.[63]
2.59
Witnesses described these tax measures as punitive and a major
disincentive to accumulating funds in the trust.[64]
Currently trust funds can only be used for very specific purposes, making it
quite possible that not all fund income will be used in a particular year and
therefore will be liable for the high rate of tax.
2.60
The tax rate that currently applies to SDT income limits families'
ability to accumulate funds in the trust to cover the larger expenses that
often occur later in the beneficiary's life. For example, parents may want to
save up to purchase independent accommodation for the person with disability or
to pay for care and support when they are no longer able to provide these
themselves. General health costs also increase later in life. FaHCSIA reported
that it had received feedback noting the difficulty families have estimating
the level of funds required to pay for a beneficiary's care and accommodation
into the future.[65]
2.61
Mr Spicer noted that the high tax rate on undistributed trust income
discourages people from setting up an SDT before their death and building it up
over time. He pointed to two major consequences: the resources in the trust
available for the support of the person with disability are limited, and
families are discouraged from planning for the future of their loved one with
disability.[66]
2.62
Mr Gresswell, who has made provision for an SDT in his will described
the current disincentive for establishing an SDT earlier:
...at the moment to set up a trust to buy him his own
accommodation I would be incurring significant income tax from the trust
income. That is because right now he does not need a lot of medical care, for
instance, but down the track he may well do. At the moment, the situation does
not warrant setting up a trust. If it did not have the drawback, yes, I
certainly would consider setting it up for him.[67]
2.63
Carers Australia suggested that undistributed income should be retained
as capital accumulation within the trust without being taxed.[68]
Representatives from Winaccom Association agreed that no tax should be paid on
undistributed income retained in the trust. Mr Gresswell of Winaccom
Association Inc, noted that any remaining undistributed income could be taxed
at a reasonable rate when the SDT was wound up.[69]
Winaccom Association considered that 'at worst, tax on unexpended income should
be in line with superannuation funds (at 15%)'.[70]
Mr O'Hart suggested that nil tax, tax at 15 per cent similar to
superannuation or tax at 30 per cent similar to company tax would all be
preferable to the current situation.[71]
2.64
Mr Spicer outlined that there are a range of options for rectifying the
high tax on undistributed SDT income. These include using special tax rates
built into the trusts or deferring tax until the trust is wound up and
disbursed.[72]
The Trustee Corporations of Australia and others suggested that it would be
appropriate for SDTs to be treated the same way as a compensation trust, where
'the trust and the beneficiary are taxed as one using the beneficiary's tax
rate'.[73]
Other tax concerns
2.65
Mr Gresswell of Winaccom Association raised a further concern about the
treatment of undistributed SDT income. He was concerned that SDT beneficiaries
may become liable for income tax:
If one assumes that the beneficiary could have other income such
as wages from working in supported business service, for example, then with
this income added to the income distributed from the special disability trust,
it could place them in a tax-paying situation. This would seem to be an anomaly
that was not predicted and should be rectified.[74]
2.66
Winaccom Association suggested that unexpended income from the trust
should not be included in the income test applied by Centrelink. The Hon Dr Patterson
saw merit in applying this approach after a certain age, similar to the
superannuation benefits 'enjoyed by people who have the opportunity of super
and do not have a disability'. The Hon Dr Patterson suggested 55 years, or
perhaps 50 years, would be an appropriate age for this tax concession, given
that people with disability usually exhibit ageing issues earlier than those
who are not disabled.[75]
Currently separate income tax is not paid on the SDT income, which as discussed
above is already taxed at the highest rate, and income generated by the trust
is not included in Centrelink income assessment. However these concerns need to
be taken into account in making any changes to the existing tax arrangements.
2.67
The Public Trustees raised the issue of 'whether a special disability
trust consisting of monies arising both from a deceased estate and from an
inter-vivos donation will retain the more favourable characteristics of the
testamentary trust for taxation purposes'. The Public Trustees called for an
Australian Taxation Office ruling on such matters.[76]
2.68
FaHCSIA commented that issues around income tax and capital gains tax on
SDTs are issues for Treasury and the Australian Tax Office.[77]
While changes to the tax arrangements for SDTs will indeed require coordination
across different government departments, the committee considers that FaHCSIA,
as the department responsible for the trusts and the portfolio encompassing
disability, has a clear responsibility to work with other areas of government
to make sure the trusts work in practice.
Committee comment
2.69
It is obvious to the committee that the tax arrangements that currently
apply to SDTs are a major disincentive for families considering setting up such
a trust. For families that have already established some private provisions for
a loved one with disability, such as purchase of a property, there are
disincentives for moving these assets into a SDT. The application of capital
gains tax to the sale of beneficiary's principal residence, where that
residence is owned by the SDT, is fundamentally inconsistent with the treatment
of the principal residences of other members of the community. The committee
considers that this is a critical flaw in the current SDT arrangements
requiring urgent rectification.
2.70
The committee is strongly of the view that the tax rate that applies to
unexpended income returned to a SDT needs to be changed. The current 46.5 per
cent tax rate is a major disincentive to using a SDT to build up funds to
support someone with a disability throughout their life. Particularly as
healthcare and support costs can increase in the later years of life,
mechanisms should be in place to support, not discourage, growth of the trust.
Recommendation 5
2.71
The committee recommends that the tax arrangements applying to SDTs be
changed so that:
- the sale of a property that is owned by a special disability
trust and used by the beneficiary as their principal place of residence be
treated the same as any other person's principle place of residence, that is,
exempt of capital gains tax;
- the transfer of property and other assets to a special disability
trust is exempt from capital gains tax and stamp duty;
- unexpended special disability trust income is taxed at the
beneficiary's personal income tax rate.
Eligible uses of the trust
2.72
Currently, the Social Security Act 1991 states that the sole
purpose of a SDT 'must be to meet the reasonable care and accommodation needs
of the beneficiary'.[78]
Ancillary purposes, necessary to facilitate this primary purpose are also
allowed. Beneficiaries cannot derive an income from the SDT and immediate
family members cannot be paid for providing care to the beneficiary or
maintenance to their home.
2.73
Guidelines issued by the Secretary of FaHCSIA set out what are
considered to be reasonable care and accommodation needs. The guidelines
include examples of the kinds of needs that are considered to be reasonable care
and accommodation needs, as well as examples that are not. The tight
restriction on eligible uses of SDTs was seen as a major shortcoming in the
current arrangements.
Care needs
2.74
Under the guidelines care needs are eligible if they arise 'as a direct
result of the disability of the principal beneficiary', are for the primary
benefit of the principal beneficiary and are met in Australia. SDTs are not
allowed to be used for needs that are met outside Australia and needs that
'would be required by the principal beneficiary whether or not the principal
beneficiary had his or her disability'.[79]
The legislation also specifically prohibits using the SDT to pay an immediate
family or child of the beneficiary for the provision of the beneficiary's care
services.[80]
2.75
There was unanimous agreement that the definition of what constitutes an
allowable 'care need' is a major problem with SDTs and a big disincentive to
setting up a trust.[81]
The current arrangements, which require expenses to be directly related to a
person's disability, were considered to be complex and difficult. This
definition means that many of the needs of people with disabilities cannot be
met from the trusts even when money is available. Submitters noted that
families face the complexity and costs of setting up two trusts; one as a SDT
and another to meet the other expenses incurred by the person with disability.[82]
2.76
Submitters pointed out that it is complicated and in some cases
impossible to determine what portion of a care cost is directly due to a person's
disability. Dr Baker, Chief Executive of National Disability Services, provided
an example:
... everyone at one time or another has to visit a medical doctor,
but for a person with intellectual disability or for profound communication
difficulties that visit to the doctor, which may be for a normal condition that
would occur for anyone else, a cold or a flu, may take twice as long because of
the communication difficulties. Is it then appropriate to say that half the
cost of the medical appointment should be attributed to disability or what
proportion? In practice, these are extremely difficult issues to disentangle.[83]
2.77
Mr Walter also provided an example:
The stupidity of it was that even to the point whereby if
someone was in an electric wheelchair the electricity used to charge the
battery for that wheelchair each night could be paid by the trust, but no other
portion of that electricity bill.[84]
2.78
The Public Trustees submitted that the need for some items may not be
directly due to a person's disability, but the use of the items and associated
costs are higher because of the person's disability. An example was a computer
and access to the internet. Although these may not be specifically related to a
person's disability, because of a mobility impairment they may be used often
and be particularly important for a person's social connection and wellbeing.
Other examples of costs which can be higher because of a person's disability
included recreation activities and the costs of the ordinary maintenance and
upkeep of a person's residence.[85]
2.79
Some other costs, which can be directly due to disability, are still not
eligible:
You cannot pay for utilities but it is well known, for example,
that some people are unable to control their temperatures, hence they need air
conditioners; good full-blast air conditioners for heating in winter and
cooling in summer. That is a direct result of their disability, it is a
utility, and yet they have to make an argument for this.[86]
2.80
Many costs that cannot be met from a SDT affect the general health and
wellbeing of people with a disability. Being able to provide for some of these
expenses would contribute to the person's quality of life and help to reduce
other expenses associated with poor health later in life. Examples of expenses
which submitters and witnesses considered should be eligible included:
- private health insurance, medical and dental treatment;
- white goods, household appliances and furniture;
- property maintenance and house cleaning;
- holidays, recreation and entertainment;
- social activities and sporting activities;
- costs of support workers;
- financial and decision making support;
- assistance with nutrition;
- special assistance with raising children, for people with mild
intellectual disability; and
- 'household costs' paid by individuals in shared supported
accommodation, such as groceries, manchester, gardening, cleaning, and
household equipment.[87]
2.81
Ms Hope, Section Manager, FaHCSIA, explained that at the time SDTs were
introduced the rationale for limiting the uses of the trust funds was that 'the
disability support pension was expected to cover the day-to-day living expenses
and therefore the care and accommodation requirement was considered to be a
reasonable expense, given that the disability support pension should cover the
other day-to-day living expenses'.[88]
2.82
Evidence from FaHCSIA indicates that many people do not intend to set up
an SDT while they are alive, preferring instead to establish SDTs through their
wills. This preference is in part related to the tight restrictions on the
eligible uses of SDT funds. Carers see little advantage in locking their assets
and funds away in a trust that cannot be used to meet many of the needs of
their family member with a disability. FaHCSIA officers acknowledged:
While the assets remain in their total control, they can use
them for the person with severe disability if they so choose, in whatever way
seems appropriate at the time, and without restrictions on how the funds may be
used.[89]
2.83
Sunnyfield Independence considered that the limitations on the use of
SDT funds 'perpetuate a paternalistic view toward people with disabilities
which is not appropriate in the contemporary environment'. Sunnyfield
Independence noted that:
...people with disabilities, even severe disabilities, are able to
express their needs and desires, and that they should be able to participate in
determining the use of the funds from an SDT rather than have that use dictated
to them.[90]
2.84
Sunnyfield Independence recommended that the rules for the use of SDT
funds should acknowledge the right of people with disabilities to make their
own decisions about their lives and what is important.[91]
Daily care fee
2.85
The guidelines issued by the Secretary of FaHCSIA setting out what constitutes
reasonable care needs were amended in April 2008 to include a specific example
relating to the daily care fee charged by approved residential care providers.[92]
Witnesses noted that such fees cover a variety of living requirements, such as
food, water, electricity and fuel for a group-home car. They submitted that it
was inequitable that SDTs were allowed to be used to cover these kinds of costs
through the daily care fee charged by a residential facility, but not to cover
these costs when provided in other ways, for example when purchased directly.[93]
2.86
FaHCSIA explained that this change to the guideline had been made by the
Secretary in response to concerns raised by the Public Trustees about how to
treat composite fees, where the portion directly attributed to a person's
disability could not be separated out. FaHCSIA representatives indicated that
there was some misunderstanding as to what the fee actually covered. Ms Emerson
said:
...it is actually quite a limited provision and it refers to a
particular group of aged care providers as defined under the aged care
legislation. It is a very small additional component of the levy, which cannot
be broken down readily into very discrete elements that would exactly match the
current guidelines. It is a beneficial interpretation that would allow the
whole of that relatively small fee to be included as a legitimate expenditure
under the trust. I heard people saying today that it was all the expenses
related to somebody’s living, but it is not. As I understand it, it is only a
very small fee, somewhere in the vicinity of $30 or under that amount.[94]
2.87
It is not entirely clear how the definition under the FaHCSIA guidelines
described above fits with the general understanding of daily care fees. The
Department of Health and Ageing (DoHA) describes these fees as a contribution
to daily living costs such as 'nursing and personal care, living expenses,
meals, linen and laundry, as well as heating and cooling'. Examples on DoHA's
website list the basic daily care fee as up to $32.05 per day.[95]
The committee has sympathy with the view of witnesses if such costs are able to
be borne from a SDT for eligible people in a residential aged-care facility,
but not for those in other care and accommodation settings.
Accommodation needs
2.88
Accommodation needs are currently eligible to be met from an SDT if the
need 'arises as a direct result of the disability of the principal
beneficiary'. The trust can also be used to purchase or rent property as long
as the property is not bought or rented from an immediate family member and is
used for accommodation by the trust beneficiary. Payment of rates and taxes on
such property is also allowed from the trust. Expenses such as maintenance and
utilities for the beneficiary's place of residence are not allowed to be paid
from the trust.[96]
2.89
Evidence to the committee's inquiry indicates that there is confusion
about the eligible accommodation uses of SDTs. Carers Australia understood that
the 'housing options that can be used are limited to those that are funded
wholly or in part under the agreement between the Commonwealth and state and
territory governments'. Ms Hughes, from Carers Australia commented:
This is a barrier for many families now who are starting to
think creatively about housing options for their family member and we believe
that the trust should be able to be used for independent housing for their
relative or to invest in unstaffed housing cooperatives: different sorts of
housing options.[97]
2.90
As noted above, SDTs can be used for independent housing through
purchase or rent of property. The restriction to housing funded wholly or in
part by an agreement between the Commonwealth and states and territories is one
component of the eligibility criteria for SDTs. These criteria were discussed
earlier in the report.
2.91
However, as raised by Ms Hughes, the ability to use SDTs for other forms
of housing, such as cooperatives and group houses, was less clear. Witnesses
recommended that more than one trust be able to be used, to jointly rent or
purchase accommodation where two or more people with disabilities choose to
live together.[98]
Submitters noted that such provision would be particularly useful for families
with more than one child with a disability, as eventually the adult children
may wish to live together.[99]
Mr Walter also suggested that SDTs should be able to co-own property with a
state housing authority.[100]
2.92
Mr Spicer noted that SDT rules need to account for the fact that 'home
is not simply a bed'. He suggested that:
Accommodation must take into account the social, emotional and
health needs of a person with a disability as well as ensuring that they have a
compatible living arrangement with others and are able to participate in and
contribute to the community.[101]
2.93
Mr Spicer highlighted that people with disability are usually unable to
move into independent accommodation without a process of transition. As such,
services to assist with a gradual transition to independent living, such as
respite stays and travel training should be able to be paid for from the SDT.[102]
2.94
There was also uncertainty about the restriction that unless an
accommodation need arises 'as a direct result of the disability', SDTs cannot
be used to purchase or rent property directly from family members. This rule
was seen as limiting some of the most used forms of accommodation for people
with disabilities. For example, Mr and Mrs Wilson and Mr Gresswell, Members of
Winaccom Association Inc, noted that this provision means that SDT funds cannot
be used for the construction of 'granny flats' attached to the family home.[103]
They noted that constructing or leasing property from family is in many cases
the 'only practical way of protecting the asset from disreputable people
wishing to strip the assets of the intellectually disabled person'.[104]
Mr Brian O'Hart provided an example where he had tried to establish whether
the rent paid by someone with a disability who was highly supported to live in
a family owned property could be covered by the trust.[105]
2.95
Witnesses also suggested that SDTs should be able to be used to pay an
accommodation bond for an aged care facility, although the guidelines issued by
FaHCSIA indicate that this is already allowable.[106]
However, as outlined in the previous chapter, capital gains tax is payable if
the beneficiary's residence is sold to pay for the accommodation bond.[107]
2.96
One further issue about using SDTs to purchase property for people with
disabilities concerned access to the First Home Owner Grant. Mr Walter wished
to ensure that if a SDT is used to purchase a first home for someone with
disability, the First Home Owner Grant should apply as it would to anyone with
the capacity to purchase a first home directly.[108]
Suggested changes
2.97
Submitters put forward various proposals for expanding the eligible uses
of SDTs. Planned Individual Networks suggested that the legislation be altered
to replace the 'sole purpose' provision with 'The purpose of a SDT is to
support the Principal Beneficiary in all their care, accommodation and living
cost as reasonably required by the Principal Beneficiary and determined in
consultation with the Trustees.'[109]
If a restriction is to be maintained, Planned Individual Networks suggested
that a clause could be included to require that a minimum of 80% of SDT income
be used for care and accommodation purposes.
2.98
The Public Trustees suggested a range of ways to broaden the 'care and
accommodation' purpose of the trusts, for example, broadening the definition to
include living essentials, including as 'care needs' all expenses incurred for
the broader welfare of the principal beneficiary, or including as eligible the
care and accommodation needs that have an increased cost or incidence because
of the person's disability.[110]
The Public Trustees recommended that SDTs be able to be used for 'both
compliant and noncompliant expenditure', or, alternatively the trust be able to
be split into sub trusts, one for eligible and one for non-eligible costs, with
'relevant welfare relief only applying to the parts to which the compliant
expenditure relates'.[111]
2.99
The National Council on Intellectual Disability recommended that the
definition of care be extended to include:
...any support equipment or service a person with a disability
requires and where the person is in receipt of a DSP that the definition of
care be further extended to include such things as holidays and personal
entertainment items.[112]
2.100
National Disability Services' perspective was that if a significant
component of a cost can be attributed to disability then the whole of the cost
should be able to be covered by the proceeds of the trust.[113]
Winaccom Association considered that 'the allowable expenses to be paid from
the SDT should be broadened to cover all reasonable accommodation and care
costs necessary to enable the disabled person to live a life comparable to a
non-disabled person'.[114]
2.101
Mr Weir did not see a reason for restricting the uses of the trusts at
all. He used an analogy to superannuation and aged care, which are partly
funded by government:
...there is no restriction on aged persons on how they spend the
money because it is accepted they spend it for their normal living needs. That
will include accommodation and care where they need it, but it also includes
anything they might need.[115]
2.102
Mr Ward, Manager, Pave the Way Mamre Association Inc. also did not see
the need for any limitations on the uses of SDT funds, other than that the
money must be used for the beneficiary.[116]
2.103
The National Disability Services suggested that the funding rules
outlined by the Victorian Department of Human Services in its draft guidelines
for the use of an individualised support package provide a model for how the
purpose requirement could be broadened. National Disability Services noted that
the draft guidelines, like the SDT rules, do not allow funds to be used as a
form of income supplementation, however, they provide much greater discretion in
relation to allowable costs. The guidelines list a number of positive,
inclusive objectives to which the funds can be used, such as 'being able to
live as independently as possible'.[117]
Other expenses
2.104
Witnesses raised several other expenses, beyond care, accommodation and
living expenses that they suggested should be met from a SDT. It was argued
that income from SDTs should be able to be used to make contributions to
superannuation and therefore attract the government co-contribution. The Hon Dr
Patterson outlined:
Most of these people are on very low incomes, their supported
employment or business service employment supplementing their DSP, and they
have very little chance of contributing to super. It would seem a way in which
they could participate in that co-contribution as low-income earners, if a
trust could contribute to super.[118]
2.105
The cost of administering an SDT was also raised. Ancillary costs,
necessary to facilitate the primary purpose of the trusts, are currently
allowed to be paid from the SDT. As such, costs of administering the trusts and
audits of the trust are met from the trust. However, Winaccom Association Inc
noted that this provision is limited as family members are not able to be
recompensed from the trust:
In order to find someone in the family who is willing to take on
the administration of the SDT we believe that family members should be able to
claim recompense for their time at a rate consistent with a commercial
organization performing the same task.[119]
Preventing misuse of funds
2.106
The Winaccom Association argued that checks could be built into the
existing system to prevent misuse of SDT funds even if the eligible uses are
broadened:
As the SDT is audited and subject to Centrelink scrutiny, it is
feasible to place the burden of proof on the Trustees of a SDT, that expenses
paid from the SDT are reasonable in each individual circumstance. Centrelink
could conduct random audits to monitor this.[120]
2.107
Witnesses for the State Trustees observed that mechanisms exist to
ensure that the trusts are not abused. Mr Fitzgerald explained:
For instance, for each trust we need to do a tax return, so that
would be one mechanism. The other one would be Centrelink returns each year to
ensure the compliance status of the trust with whatever rules ultimately are
applied to this initiative, even if they are broadened...[121]
2.108
There was a strong view that the trusts should be considered in terms of
the benefit that can be provided to the person with a disability; the focus
should not be on the potential for evasion of tax commitments and
responsibilities. Submitters argued that loosening the current onerous
restrictions on the eligible care uses of the trusts would be a key step in
refocussing SDTs on the benefits for the person with disability.
Committee comment
2.109
The committee is strongly of the view that the tight restrictions on the
eligible uses of SDT funds are severely hampering take-up of the trusts. People
see little point in setting aside funds if those funds cannot be used to provide
the accommodation, care and support that their loved one needs to live as
independently as possible. The committee notes that being able to provide
better care and living standards for people with disability, for example using
SDTs for private health insurance, medical and dental treatment and a range of
household expenses and social engagement activities stands to improve their
health and wellbeing, as well as relieve some of the stress and burden on their
carers.
2.110
The original intention of SDTs was to assist families able to make
private financial provisions for the current or future accommodation and care
of a family member with severe disability. The committee considers that the
eligible uses of the trust must be expanded if this intention is to be given
effect.
Recommendation 6
2.111
The committee recommends that the allowable uses of special disability
trusts be expanded to include all day-to-day living expenses that are met to
maximise the beneficiary's health, wellbeing, recreation and independence.
Recommendation 7
2.112
The committee recommends that unexpended income from a special
disability trust be able to be contributed, on a pre-tax basis, to a
superannuation fund for the trust beneficiary.
Recommendation 8
2.113
The committee recommends that when a special disability trust is used to
purchase a first home for the trust beneficiary, the First Home Owner Grant
should apply and be payable to the trust.
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