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Assessable Assets from Discretionary Trusts pre 01/01/2002

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Assessment of assets

If a person and/or their partner are beneficiaries of a discretionary trust, no part of the value of the trust's assets is assessable, until the trustee makes a distribution from the capital of the trust. This is because there is no way of apportioning a share of the assets of the trust to any particular beneficiary until the trustee has exercised their discretionary powers. When the assets of the trust are distributed to its beneficiaries, the amount received is an asset if it is not otherwise exempt. An example is the principal residence.

Assessment of assets from discretionary trust

The following table describes how the assets from a discretionary trust are assessed.

If a person is...

Then they...

a co-beneficiary of the assets of a discretionary trust

have an asset, however no value is placed on the asset for assessment purposes. The person's interest in the asset is dependent on the trustee deciding in what proportion to distribute the trust's assets.

the sole beneficiary of the assets of a discretionary trust

are generally considered to have the beneficial ownership of the trust's assets for assessment purposes. The terms of the trust deed must state that the person has an absolute interest in the distribution of the trust's assets before they can be assessed as the person's.

Couples

If a couple are the only beneficiaries of a discretionary trust, and the trust's assets are not exempt:

  • they are assessed as the couple's assets, and
  • each partner is assigned half of the assets.
Description of asset assessment for different roles within trusts

The following table describes the roles of individuals within a trust and the treatment of their trust related assets. A person may have more than one role and each needs to be considered separately.

Role

Description

Settlor

Is not usually entitled to a share of the trust assets, but deprivation of assets provisions may apply for gifts to the trust.

Contributor

Loans made to the trust are assessable assets, and deprivation of assets may apply for gifts to the trust.

Beneficiary

Has an interest in the assets of the trust at the trustee's discretion, therefore no amount is held as an assessable asset.

Exception: Sole beneficiaries or a married couple who are the only 2 beneficiaries.

Trustee

Is not entitled to a share of the trust assets unless also a beneficiary, although asset(s) may be registered in their name.

Summary table of assessable assets

The following table summarises the assessment of assets from private discretionary trusts for pensions.

Type of Asset

Description

Interest in the trust's assets

Do not assess the trust's assets as assets of the person. The person has no entitlement until the assets are distributed by the trustee.

Beneficiary account

Assess as a financial asset of the person. The money is put in the account by the trust usually as reinvested trust distributions or interest. These may be called beneficiary loan accounts, current accounts or beneficiary current accounts.    

Loan to a trust

Assess as a financial asset of the person. The money has been loaned to the trust by the person. These may also be called beneficiary loan accounts or loans.

Assets gifted to a trust

Maintain the amount that was disposed of as a deprived asset for 5 years from the date of disposal, less the allowable gifting limit.


A discretionary trust is a private trust set up by an individual or individuals either to:

  • hold property or investments, or
  • run a business.

In virtually all cases the trust deed gives absolute discretion to the trustee to distribute both income and capital among the beneficiaries as he or she sees fit.

An asset means any property, including property outside Australia.

Trustee has two meanings depending on the context, (i) and (ii).

(i) a person who looks after someone else's affairs

According to section 202 of the VEA, a trustee is a person appointed by the Commission to administer the financial affairs of a pensioner who may be incapable of managing their own affairs for reasons such as:

  • age,
  • infirmity,
  • ill health, or
  • improvidence.

These criteria include circumstances where a pensioner has a psychiatric disorder or a mental illness as a result of alcohol or drug addiction.

A trustee can be appointed, with or without the consent of the pensioner and once appointed, a trustee has full control of the pension payment.

(ii) a person responsible for administration of a trust

According to section 52ZO of the VEA, trustee has the same meaning as in the Income Tax Assessment Act 1997.