Social Security (Means Test Treatment of Private Trusts - Excluded Trusts) Declaration 2005 (FACS)

Administered by Department of Social Services

Legislation au F2005L01190 Not in force Legislative Instrument

Legislation content

EXPLANATORY STATEMENT

Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2005

Summary

Subsection 1207P(4) of the Social Security Act 1991 (the Act) provides that the Secretary may, by writing, declare that a trust in a specified class of trusts is an excluded trust for the purposes of section 1207P. This Instrument repeals the former Instrument made under this provision and makes a new Instrument.

The attached Instrument specifies classes of trusts that are excluded trusts.

The effect of a trust being an excluded trust is that the assets and income of such a trust will not be attributed to an individual for the purposes of ascertaining the person's assets or income for means-testing purposes under Part 3.18 of the Act.  However, a trust excluded under this instrument may still be assessed as an asset of a person for social security purposes under any other part of the Act.

This Instrument removes “court-ordered trusts” as a class of excluded trust for the purposes of Part 3.18 of the Act. This amendment is to make it clear that “court-ordered trusts” should now be assessed under Part 3.18 of the Act.

Background

The Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000 amended the Social Security Act 1991 and the Veterans' Entitlements Act 1986 to give effect to a measure in the Government's 2000-2001 Budget to revise the means test treatment of private companies and private trusts.

The measure aims to ensure that clients who hold their assets in private companies or private trusts receive comparable treatment under the means test to those clients who hold their assets directly. The assets and income of the structure will be attributed to the person or persons who control the company or trust, or to the person or persons who were the source of the capital or corpus of the company or trust.

One of the conditions for attributing an asset or the income of a trust to an individual under the Act is that the trust is a "designated private trust”. Subsection 1207P(1) provides that a trust is a designated private trust if certain criteria are satisfied. One of these criteria is that "the trust is not an excluded trust". In short, a designated private trust cannot be an excluded trust.

The Instrument, therefore, excludes certain classes of trusts from the ambit of the definition of designated private trust with the result that the assets and income of such an excluded trust will not be attributed, under Part 3.18 of the Act, to the individual for means-testing purposes.  A trust excluded under this instrument may still be assessed as an asset of a person for social security purposes under any other part of the Act.

 


Explanation of the provisions

Part 1

Section 1 of the Principles states the name of the disallowable instrument and section 2 states that the instrument commences on the day after registration pursuant to the Legislative Instruments Act 2003. Section 3 sets out the purpose of the instrument. Section 4 contains interpretation provisions. In particular, the term “community purpose” is defined to mean a purpose that is intended to benefit primarily the members of a particular community or group.

Part 2

Subsection 5(1) specifies that each trust that meets the requirements of subsection 5(2) is an excluded trust. Where the sole or dominant purpose of a trust is to receive, manage and distribute property transferred to it, directly or indirectly, by a government body (as defined it section 4), for a community purpose, then the trust is an excluded trust. Similarly, where the sole or dominant purpose of a trust is to receive, manage and distribute income generated from the use of indigenous-held land, for a community purpose, then, likewise, that trust is an excluded trust. A trust will also be an excluded trust if it holds, manages or disposes of indigenous-held land for a community purpose.  An excluded trust is only excluded from the ambit of Part 3.18 of the Act by operation of this instrument.

Section 6 specifies that a fixed trust created before 7:30pm (A.C.T. time) on 9 May 2000 will be an excluded trust for the purposes of Part 3.18 of the Social Security Act, unless the trust deed has been varied, or property (other than income generated by the trust) has been transferred into the trust, after that time.

Consultation

Consultation regarding the removal of “court-ordered trusts” as a class of excluded trust for the purposes of Part 3.18 of the Act was undertaken with the Department of Veterans’ Affairs as that Department administers legislation which incorporates similar rules relating to the treatment of trusts and companies as that provided by the Act.  The Department of Employment and Workplace Relations and the Department of Education, Science and Training were also consulted to ensure a co-ordinated approach to the administration of “court-ordered trusts” in respect of payments under the Act for which they now have responsibility.

The Instrument is of a minor nature and does not substantially alter existing arrangements.  The Instrument clarifies the situation which has been raised in regard to “court-ordered trusts”.  “Court-ordered trusts” will now be assessed under the trusts and companies legislation rather than being assessed under the general assets test definition in section 11 of the Act.  The change does not in any way alter the intent or spirit of the relevant legislation.  Public consultation was therefore seen as unnecessary.

Retrospectivity

None.

 

Overview

The Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2005 was enacted to clarify the means test treatment of private trusts for social security purposes, ensuring that certain trusts are excluded from the assessment of an individual's assets and income under the Social Security Act 1991. This legislation, which was introduced by the Australian Government, aims to ensure consistency in the treatment of private companies and trusts under the means test. The exclusion of certain trusts from the means test aims to prevent double counting of assets and income that are not readily available for personal use, while still allowing these trusts to be assessed as assets under other parts of the Act. Notably, this declaration removes "court-ordered trusts" from the category of excluded trusts, directing that they should now be assessed under the relevant trusts and companies legislation. The purpose of this amendment is to align the treatment of such trusts with the intent of the broader social security framework, ensuring that they are assessed appropriately under the relevant provisions.

Scope and Application

The Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2005 applies to the treatment of private trusts for means-testing purposes under the Social Security Act 1991. It specifies classes of trusts that are designated as excluded trusts, meaning their assets and income will not be attributed to an individual for the purposes of means-testing. These excluded trusts include those established to receive, manage and distribute property or income for a community purpose, and fixed trusts created before a specified date unless their deed has been varied or property has been transferred into them since. However, these excluded trusts can still be assessed as an asset under other parts of the Social Security Act. The instrument also removes "court-ordered trusts" from the excluded category, specifying that they should now be assessed under the trusts and companies legislation. The instrument's application is nationwide and extends to all private trusts that meet the specified criteria. The instrument operates through subordinate legislation, clarifying the treatment of certain trusts in the means-testing framework.

Key Provisions

The main operative sections of the Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2005 (subsection 1207P(4) of the Social Security Act 1991) specify certain classes of trusts that are considered "excluded trusts" for the purposes of the means test under Part 3.18 of the Act. These excluded trusts are trusts where the assets and income will not be attributed to an individual when determining their assets or income for means-testing purposes. However, these trusts may still be assessed as an individual's asset under other parts of the Act. Section 5 of the Instrument specifies that trusts whose sole or dominant purpose is to receive, manage, and distribute property transferred by a government body for a community purpose, or income generated from the use of indigenous-held land for a community purpose, are excluded trusts. Additionally, trusts that hold, manage, or dispose of indigenous-held land for a community purpose are also excluded. A trust created before 9 May 2000 will be an excluded trust unless the trust deed has been varied or property (other than income) has been transferred into the trust after that date (subsection 6). The obligations and requirements imposed by this Act on the parties or entities it governs are primarily focused on the identification and classification of trusts as either excluded or designated private trusts. Trusts meeting the criteria set out in Section 5 of the Instrument must be recognised as excluded trusts, ensuring their assets and income are not attributed to individuals for means-testing purposes. This classification is crucial for accurately determining an individual's eligibility for social security benefits. The Act also requires that any changes to the trust deed or transfers of property into the trust after the specified date of 9 May 2000 are documented and considered in the classification process. Breach of the provisions in this Act can result in civil or criminal consequences. While specific penalties are not detailed in the explanatory statement, it is clear that incorrect classification of trusts could lead to improper assessment of an individual’s assets and income for means-testing purposes, potentially resulting in either overpayment or underpayment of social security benefits. Such breaches might also lead to investigations by the relevant authorities and possible corrective actions, including repayment of any incorrectly received benefits. The Act ensures that the integrity of the means test is maintained, and compliance is strictly enforced to prevent misuse of the social security system.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.