EXPLANATORY STATEMENT
Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) (DEEWR) Declaration 2008
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) (DEEWR) Declaration 2008 (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 in relation to payments administered by the Department of Education, Employment and Workplace Relations (DEEWR). 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
In 2000 the means test treatment of private companies and private trusts was revised and the Act and the Veterans’ Entitlements Act 1986 were amended by the Social Security and Veterans’ Entitlements Legislation Amendment (Private Trusts and Private Companies – Integrity of Means Testing) Act 2000. As a result, the Secretary of the Department can declare that a Private Trust is an excluded trust for the purposes of means tests under the Act.
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) of the Act 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 excludes certain classes of trusts from 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.
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 2000-2001 Budget announcement whose trust deed or assets have remained unchanged since that announcement.
The Declaration maintains the existing exclusions currently set out in the Social Security (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2007 (DEWR) (which expires on 30 June 2008) and the Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) Declaration 2005, and prior declarations under subsection 1207P(4) of the Act made by the Secretary of the Department of Family and Community Services and Indigenous Affairs.
Explanation of Provisions
Part 1
Section 1 of the instrument states the name of the Declaration.
Section 2 states that the Declaration commences on the day after it is registered.
Section 3 outlines the revocation of former declarations. Social Security (Means Test Treatment of Private Trusts – Excluded ) Declaration 2005 signed by Bill Burmester acting Secretary of the Department of Education, Science and Training on 17 May 2005 and Social Security (Means Test Treatment of Private Trusts – Excluded Trusts) Declaration 2007 (DEWR) are revoked by this instrument.
Section 4 provides definitions for the purposes of the instrument.
community purpose means a purpose that is intended to benefit primarily the members of a particular community or group.
government body includes a department or agency of the Commonwealth; a department or agency of a State or Territory; a municipal corporation or other local government body; or a body corporate in which the Commonwealth, a State or a Territory body holds a controlling interest.
income has the same meaning as in subsection 1207P(7) of the Act. Subsection 1207P(7) of the Social Security Act 1991 defines income to have the ordinary meaning of that expression.
indigenous-held land has the same meaning as in section 4B of the Aboriginal and Torres Strait Islander Act 2005. Indigenous-held land is defined in that Act to be indigenous-held land if an interest in the land is held by an Aboriginal or Torres Strait Islander corporation, or an interest in the land is held by an Aboriginal person or Torres Strait Islander. Subsections 4B(2) to 4B(4) provide exceptions to this definition. The Aboriginal and Torres Strait Islander Act 2005 contains the same definition as the Aboriginal and Torres Straight Island Commission Act 1989 which was repealed in 2005.
reference time means 7.30 pm, standard time in the Australian Capital Territory, on 9 May 2000. 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. A trust will also be an excluded trust if it holds, manages or disposes of indigenous-held land for a community purpose.
Paragraph 5(2)(c) provides that 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, that trust is an excluded trust. This will include situations where a trust has its sole or dominant purpose of distributing income which includes mining royalties if that income is applied for a community purpose.
Section 6 specifies that a fixed trust created before 7:30pm (Australian Capital Territory 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 the reference time.
Consultation
As the Declaration maintains the existing exclusions, no public consultation on the instrument was undertaken. The making of this instrument reflects that the Department of Education, Science and Training and the Department of Employment and Workplace Relations have been merged as a result of Machinery of Government changes to form the Department of Education, Employment and Workplace Relations.
Business Cost Calculator Figure
This exemption does not require a Regulatory Impact Statement (RIS) and/or a Business Cost Calculator Figure. This exemption is not regulatory in nature, will not impact on business activity and will have no, or minimal, compliance costs or competition impact. It is not expected that any compliance costs will be incurred by business as a result of this exemption.