Ben­e­fits of a dis­abil­ity trust

Money Magazine Australia - - NEWS & VIEWS -

TAX TIP

If you have a child, or an­other close rel­a­tive, with se­vere dis­abil­i­ties and need to plan for their care when you are no longer around, you can set up a spe­cial dis­abil­ity trust (SDT), which can pay for any care, ac­com­mo­da­tion, med­i­cal costs and other needs of the ben­e­fi­ciary dur­ing their life­time. The prin­ci­pal ben­e­fits of an SDT are:

It can pay for the ben­e­fi­ciary’s den­tal and med­i­cal ex­penses, in­clud­ing mem­ber­ship costs for pri­vate health funds.

It can also pay the main­te­nance ex­penses of the trust’s prop­erty as­sets.

It can spend up to $12,000 in a fi­nan­cial year on dis­cre­tionary items not re­lated to the ben­e­fi­ciary’s care and ac­com­mo­da­tion.

El­i­gi­ble fam­ily mem­bers can make gifts to the SDT of up to $500,000 com­bined.

The net in­come of the trust for tax pur­poses is as­sessed to the trustee on be­half of the ben­e­fi­ciary. How­ever, the net in­come of an SDT is taxed at the prin­ci­pal ben­e­fi­ciary’s mar­ginal in­come tax rate, rather than at the puni­tive rates nor­mally ap­plied where in­come is as­sessed to a trustee.

The tax law also al­lows a cap­i­tal gains tax ex­emp­tion for any as­set do­nated into a SDT. As well, the trustee can claim the CGT main res­i­dence ex­emp­tion for a dwelling held by the trust for use by the prin­ci­pal ben­e­fi­ciary where the dwelling would have been the main res­i­dence of the ben­e­fi­ciary if the ben­e­fi­ciary had owned it di­rect. MARK CHAP­MAN, DIREC­TOR OF TAX COM­MU­NI­CA­TIONS AT H&R BLOCK. MCHAP­MAN@HRBLOCK.COM.AU

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