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Discretionary Trust, Rural Succession Trust, and Fixed Unit Trust
Discretionary trust established before 7.30pm 9 May 2000
If assets have been transferred to a discretionary trust before 7.30pm 9 May 2000, attribution among the attributable stakeholders of the trust should be determined according to the degree of control capable of being exercised in the trust by the stakeholder(s).
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Discretionary trust established at or after 7.30pm 9 May 2000
If a discretionary trust:
- is established after 7.30pm 9 May 2000, or
- contributions have been made to a trust after that time,
the determination of attribution percentage among attributable stakeholders should be made with regard to the source of the assets of the trust.
If the delegate is satisfied that attributing the assets or income, or both, of the structure to the source would produce an inappropriate result, attribution should be determined according to the degree of control capable of being exercised in the trust by the stakeholder(s).
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Rural succession trusts
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Rural succession trusts vary from a discretionary trust in that they hold land only. They do not trade or lodge tax returns and rarely have an associated balance sheet other than when the original transfer of the property took place. There is usually an appointor (parent) with the child acting as trustee. They are set up to minimise death duties, stamp duties and the effects of marital breakdowns. The powers of the appointor should be examined and if their only power is the prevention of sale of the land, the trustee will be attributed with the assets, with more potential to effect Centrelink and Family Payments. The concessional treatment of such trusts only applies where the limited appointorship was created prior to 1 April 2002. The appointor must have also ceased involvement in the farm partnership by 31 March 2002.
Fixed (non-discretionary) trust
Under pre-1/1/2002 rules, the income and assets generated by fixed (non-discretionary) trusts, including fixed testamentary trusts, are fully assessed against the trust beneficiaries in the fixed proportions laid down by the trust deed. The practice of assessing the asset value based on net asset backing method and the income on actual distributions to beneficiaries will continue for fixed trusts established before 7.30p.m. 9 May 2000. Fixed trusts established after 7.30pm 9 May 2000 will be assessed under the current (ie post-1/1/2002) rules.
Changes made after 9 May 2000 to a pre 9 May 2000 fixed trust
Also, if after 7.30pm 9 May 2000:
- a trust is varied or altered in accordance with a trust deed, or
- additional funds are contributed to a trust, or
- there are changes to the beneficiaries entitled under a trust,
the delegate should determine attribution among the attributable stakeholders of the trust as if the trust had been established after that date if, in the circumstances, the delegate considers it appropriate to do so. An exception would be if a beneficiary of the trust passes away and a refixing of the entitlements of the beneficiaries is required.
Concessional primary production trusts
Section 52ZZZF VEA
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.
According to section 52ZZJ of the VEA, a person is an attributable stakeholder if a company or trust is a controlled private company or trust in relation to the individual unless the Commission determines otherwise.
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.
Attribution percentage is the percentage of income or assets in the private trust or company that will be taken to be the income and assets of the pensioner for the purpose of the income and assets tests. This only applies if the pensioner (or spouse) is determined to be a controller of the private trust or company.
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.
A non-discretionary trust is a trust for which the terms of the trust deed do not give the trustee discretion about whether to:
- pay or apply income, or
- choose to whom the trust is distributed.
The net asset backing method provides the least complex and consistent basis for assessing the value of private companies. The method values the shares in a private company by calculating the:
- adjusted net asset position of the company, by deducting company liabilities from the current market value of the assets, and
- assessable value of shares by determining the amount of surplus capital that would accrue to each share if wound-up.
The calculation is based upon information in the company balance sheet and depreciation schedule taking into consideration the current market value rather than the historical value as may appear in the balance sheet.
According to section 52ZZJ of the VEA, a person is an attributable stakeholder if a company or trust is a controlled private company or trust in relation to the individual unless the Commission determines otherwise.