EXPLANATORY STATEMENT
Veterans' Entitlements (Means Test Treatment of Private Trusts — Excluded Trusts) Declaration 2001
Summary
Subsection 52ZZB(4) of the Veterans' Entitlements Act 1986 (the Act) provides that the Repatriation Commission (the Commission) may, by writing, declare that a trust in a specified class of trusts is an excluded trust for the purposes of section 52ZZB.
Pursuant to subsection 52ZZB(4) the Commission made the attached Instrument which specifies classes of trusts within which a trust is an "excluded trust".
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 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 criteria that establishes whether an asset or the income of a trust will be attributed to an individual under the Act is that the trust is a "designated private trust". A trust is deemed to be a designated private trust unless it satisfies one of several criteria. One of these criteria being that the trust is an excluded trust. In short, if a trust is an excluded trust then it cannot be a designated private trust.
The attached Instrument, therefore, excludes certain trusts from the ambit of the definition of designated private trust with the result that the assets and income of the excluded trust will not be attributed to the individual in question for means-testing purposes.
The key question is: "what is an 'excluded trust' " and this is explained in the attachment.
ATTACHMENT
Explanation of the Instrument
Part 1
Section 1 states the name of the Instrument.
Section 2 provides that the Instrument will commence on gazettal. The Instrument is a "disallowable Instrument" meaning that it must be gazetted and tabled in Parliament.
Section 3 sets out the purpose of the Instrument.
Section 4 contains "interpretation provisions".
Part 2
Sections 5,6 specify three different classes of trusts - "Community Trusts", "Court-
and 7 ordered trusts" and certain "fixed trusts". A trust within any of these
classes of trust is an excluded trust.
Community trusts
Where the sole or dominant purpose of a trust is to receive, manage and distribute property given to it, directly or indirectly, by a government or government-type body, for a community purpose, then the trust is an excluded trust.
The terms "government body" and "community purpose" are defined in section 4 of the Instrument.
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, then, likewise, that trust is an excluded trust.
The terms "income" and "indigenous-held land" are defined in section 4 of the Instrument, with the term "income" being further defined in subsection 52ZZB(7) of the Act to mean: "income within the ordinary meaning of that expression".
Court-ordered trusts
In a personal injury matter, a court may order that some or all of the proceeds of a judgement of the court or of a settlement between parties, be held on trust for the beneficiary of the judgement or settlement and any such trust is an excluded trust.
Certain Fixed trusts
A trust that is a "fixed trust" and which is created before "the reference time" is an excluded trust.
A fixed trust is defined in subsection 52ZZB(7) of the Act and means a trust where persons have fixed entitlements to all of the income and corpus of the trust.
The phrase "reference time" is defined in section 4 of the Instrument.
However, a fixed trust created before the reference time loses its status as an excluded trust if, after the reference time, the trust has been varied under its trust deed or property (other than income generated by the trust) has been transferred to the trust.
Repatriation Commission