EXPLANATORY STATEMENT
Veterans' Entitlements (Means Test Treatment of Private Trusts - Excluded Trusts) Declaration 2005
Summary
Subsection 52ZZB(4) of the Veterans' Entitlements Act 1986 (the Act) provides that the Repatriation Commission (Commission) may, by writing, declare that a trust in a specified class of trusts is an excluded trust for the purposes of section 52ZZB of the Act. 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 the Act.
This Instrument removes "court-ordered trusts" as a class of excluded trust for the purposes of the Act. This amendment is to make it clear that "court-ordered trusts" should now be assessed 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 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 52ZZB(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 the Act, to the individual for means-testing purposes.
Explanation of the provisions
Part 1
Section 1 of the Principles states the name of the 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 or 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 its sole or dominant purpose is to hold, manage or dispose of indigenous-held land for a community purpose.
Similarly, where the sole or dominant purpose of a trust is to receive, manage or distribute income generated from the use of indigenous-held land, for a community purpose, then, likewise, that trust is an excluded trust.
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 the 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.
The instrument is considered to be a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Consultation
None. For the purposes of the definition of "explanatory statement" (consultation) in subsection 4(1) of the Legislative Instruments Act 2003 the Rule-Maker, in this case the Repatriation Commission, considered consultation in respect of the legislative instrument was not necessary.
The Instrument is essentially the same as the instrument it repeals except that it now provides that the income/assets of a court-ordered trust may be attributed to an individual under a body of rules in the Veterans' Entitlements Act 1986 (VEA) known as the "attribution rules" (new rules).
The repealed instrument provided that the income/assets of a court-ordered trust could not be attributed to an individual under the new rules. It did this only because it was the intention that such income/assets could be assessed as the individual's income under another set of rules in the VEA (old rules).
Put simply, it was considered that there was no need to provide under the new rules that the income/assets of a court-ordered trust could be attributed to the beneficiary because this was provided for under the old rules. Accordingly, the repealed instrument excluded court-ordered trusts from the new rules. But it was always the intention that the income/assets of a single-beneficiary trust could be assessed as the property of the beneficiary.
However, a recent judicial decision brought into question the reliance upon the old rules to ensure that the income/assets of a single-beneficiary court-ordered trust would be assessed as the beneficiary's income/assets.
It became necessary, therefore, in order to remove any doubt that the income/assets of a court-ordered trust may be assessed as the property of a beneficiary, to repeal the former instrument and make a new one that enables the income/assets of court-ordered trusts to be attributed to a beneficiary, thereby reinforcing the integrity of the relevant legislation. This change does not in any way alter the intent or spirit of the relevant legislation and it will have an impact in very few cases. Public consultation was therefore seen as unnecessary.
Documents Incorporated By Reference
For the purposes of the definition of "explanatory statement" in subsection 4(1) of the Legislative Instruments Act 2003 (documents incorporated in legislative instruments) the document incorporated-by-reference in the instrument is:
Section 4B of the Aboriginal and Torres Strait Islander Commission Act 1989
This document is available on the website SCALE of the Australian Government Attorney-General's Department.
http://scaletext.law.gov.au/html/pasteact/0/286/top.htm
Retrospectivity
None.