EXPLANATORY STATEMENT
Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2007 (DEWR)
Summary
Subsection 1207P(4) of the Social Security Act 1991 (the Act) provides that the Secretary may, by legislative instrument, declare that a trust in a specified class of trusts is an excluded trust for the purposes of section 1207P.
The Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2007 (DEWR) (the Declaration) specifies classes of trusts that are excluded trusts.
The effect of a trust being an excluded trust is that the assets and income generated within 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.
The Declaration sets out which trusts are to be classified as excluded trusts for the purposes of 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 Declaration, therefore, excludes certain classes of trusts from the ambit of the definition of designated private trust. The result is that the assets and income generated within 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 Declaration may still be assessed as an asset of a person for social security purposes under any other part of the Act. For example, income paid from the trust, as cash or in kind, to an individual or group of individuals is counted as income for the relevant individual/s.
There are two classes of trusts which broadly benefit from being excluded under the Declaration. Firstly, trusts whose assets comprise property provided by government for the benefit of a community, or whose assets comprise indigenous-held land or income from that land, and whose sole or dominant purpose is to benefit the community. Secondly, fixed trusts existing prior to the Budget announcement whose trust deed or assets have remained unchanged since that announcement.
The Declaration continues exclusions set out in the Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2006 (DEWR) (which expires on 30 June 2007), and prior declarations under subsection 1207P(4) of the Act made by the Secretary of the Department of Family, Community Services and Indigenous Affairs. It does not change existing arrangements.
Explanation of the provisions
Section 1 of the Declaration sets out its name.
Section 2 provides that the Declaration commences on 1 July 2007 and ends on 30 June 2008. The Declaration’s start date coincides with the end of the Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2006 (DEWR).
Section 3 sets out the purpose of the Declaration (see Background, above).
Section 4 contains definitions of key terms in the Declaration. 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. The definition of reference time is the time and date on which the Ministerial announcement about the proposed new means test treatment of private trusts and private companies was made.
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 in 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.
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.
Effect on Business
The Declaration has negligible effect on business or competition.
Consultation
As the Declaration continues and does not alter existing arrangements, no public consultation on the instrument was undertaken.
Retrospectivity
The Declaration has no retrospective effect.