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Concessions for a Pensioner Surrendering Control of a Private Company or Trust before 1 April 2002

Controller of an entity who surrenders control between 01/01/2002 and 31/03/2002

If a pensioner who is a controller of a private trust or private company wishes to surrender control of the trust or company, they may do so prior to 1 April 2002 and have any possible deprivation assessed under the rules in force prior to 1 January 2002. This concession was announced by the Government on 20 December 2001. This change relates only to pensioners surrendering control of private trusts or private companies, and does not delay the implementation of the new trusts and companies rules, which came into effect on 1 January 2002. Pensioners who are assessed as controllers of trusts or companies on or after 1 January 2002 and who have their payments reduced or cancelled as a result of the new rules, will not have their payments backdated to 1 January 2002 if they subsequently surrendered control of their private trust or private company before 1 April 2002. Payment will only be restored from the date the delegate is satisfied that the pensioner genuinely surrendered control.

Example of surrender of control before 1 April 2002 – concession applies

Wally is a farmer who has a $500,000 farming property in a discretionary trust. Wally had been planning to transfer control of this trust to his son prior to 1 January 2002 in order to continue to be eligible for the Income Support Pension he was receiving. However, Wally failed to make the necessary changes in time and as a result his Pension was cancelled on 1 January 2002, when the trust assets were attributed to him as the trust controller. Wally has decided that he would still like to transfer control of the farming trust to his son; he does this and supplies the necessary documentation to the department on 28 February 2002. Wally will be considered to not be a controller of the trust from 28 February 2002 and his pension can be restored from this date. As Wally has surrendered control of the trust prior to 1 April 2002, he will not be considered to have incurred deprivation as a result of surrendering control of the trust under the rules in force from 1 January 2002. He will instead be assessed as if control of the trust had been surrendered prior to 1 January 2002. However any increase would be effective from the date of notification.

Concession not to apply in certain circumstances

Delegates should keep in mind that this 3-month concession is granted at the discretion of the delegate. Where a delegate believes that a pensioner may gain an unfair advantage by exploiting the concession, the concession should not apply.

Example of surrender of control before 1 April 2002 – concession does not apply

Justine has $100,000 worth of shares in a discretionary trust that she controls. Justine does not surrender control of the trust on 1 January 2002 and is attributed with control of the trust. Justine also owns a $150,000 investment property in her own name, which she transfers to the trust on 20 January 2002. No deprivation is incurred in this process, as Justine is the 100% attributable stakeholder of this trust. On 15 February 2002, Justine transfers control of the trust (now with net assets of $250,000) to her son, and claims that she should not be assessed with deprivation as a result of this transfer as she is accessing this concession. In this instance, the concession would not apply. Justine's actions in transferring other assets to the trust before surrendering control of the trust indicate that she was fully aware of the new trusts and companies rules prior to their implementation, and is only taking this course of action to circumvent the income and assets test. Justine will be assessed as having deprived herself of a $250,000 asset in this instance.

Control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights.

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.