Changes to taxation of special disability trusts

In the 2009-10 Federal Budget, the government announced changes to the taxation of special disability trusts extending the capital gains tax (CGT) main residence exemption to include a residence that is owned by the trustee of a special disability trust and used by the principal beneficiary as their main residence. The start date for the extension of the CGT main residence exemption was proposed to be effective from 1 July 2009.

In the 2011-12 Federal Budget, the government announced that it would backdate the start date for the CGT main residence exemption to apply for CGT events on and after 1 July 2006.

Further, the government also announced that:

The definition of a special disability trust and principal beneficiary would be extended to include references to those entities in the Veterans' Entitlement Act 1986.
A CGT exemption would apply for all CGT assets transferred into a special disability trust for no consideration.
A CGT exemption would apply to the intended recipient of the principal beneficiary's main residence after their death, where the intended recipient's ownership interest ends within two years of the principal beneficiary's death. This exemption would apply provided that, at the time of the principal beneficiary's death the dwelling was the deceased's main residence, the dwelling was not used to produce assessable income and the trust was a special disability trust.

The start date for these announcements is effective from 1 July 2006.

Media release

Information about the government's 2011-12 budget announcement is included in the joint media release no 70 by the Assistant Treasurer, Minister for Financial Services and Superannuation and Parliamentary Secretary for Disability and Carers.

Legislation and supporting material

Tax Laws Amendment (2011 Measures No. 7) Act 2011 received royal assent on 29 November 2011 and the Explanatory Memorandum is available.

Administrative treatment

Taxpayers will need to review their positions for prior year returns lodged where amounts were included in assessable income as a capital gain, but which are exempt as a result of the changes in the law, or received incorrect assessments after the definition of a special disability trust and principal beneficiary was extended to those entities in the Veteran's Entitlement Act 1986.

Those taxpayers who received incorrect assessments as a result of the definition of a special disability trust and principal beneficiary being extended to those entities in the Veteran's Entitlement Act 1986 should seek amendments. Interest on overpayments will also be paid.

Those taxpayers who declared a capital gain that is now exempt under the changes should seek amendments. Interest on overpayment will also be paid.

More information

For more information regarding how to lodge 2010-11 returns for a special disability trust or principal beneficiaries of those trusts, refer to the businesses section within www.ato.gov.au

Last Modified: Thursday, 22 March 2012

Our commitment to you

We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.

Copyright

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products)