Review of a Special Disability Trust (SDT) 043-04070070

Non-Complex Assessment Officer (CAO) staff:

• If a person is contacting about the annual review, go to Step 2
• Otherwise, for initial and general enquires, see Special Disability Trust (SDT) - initial contact for escalation to a CAO in the SDT processing team

Complex Assessment Officer (CAO) staff

If undertaking an:

• annual review, see Table 2
• audit, see Table 5

Staff can only give specific information to a party linked to the trust, an office holder, nominee or nominated contact. For all other contact, only give general information, and advise that a linked party should contact Services Australia.

If contact is to advise that the requested financial statements will not be available to lodge by 31 March:

• Send a Fast Note - Service Reason TRF - Trust and Company, select Auto text, use Complex Assessment > Request for CAO action > CAO Special Disability Trust
• A CAO must follow up to determine the reasons for the delay, and whether a waiver is appropriate for late lodgement of the financial statements

If contact is to advise that the financial statements have been lodged and reminder letter has been issued, look for scanned images on either the trust or linked parties' records. If:

• found, select the SDT review activity from the Future Activity List (FAL) screen using the date of receipt of the scan
• not found, ask the customer to resupply the documents by 31 March

If the trust contact attends a service centre with the annual SDT review documents:

• Scan the letter and any associated financial documents to the trust record
• Select the SDT review activity from the FAL screen using the date of receipt of the scan

If the trust contact is providing additional documents, or there is no SDT review activity on the FAL screen, send a Fast Note - Service Reason TRF - Trust and Company, select Auto text use Complex Assessment > Request for CAO action > CAO Special Disability Trust.

Procedure ends here.

When an annual review is received, in Customer First, create the following year's review on the Activity Registration (AYR) screen and complete the fields as follows:

• Service Reason: TRF
• Source: INT
• Activity Type: TRV
• Date of Receipt: today's date
• Review Reason: SDT (Special Disability Trust Rev)
• Resubmit Date: leave blank
• Action: FMI (Form Issue)
• Action Date: 1 January of the following year
• Keywords:
• SDT
• Annual, and
• Relevant financial year (For example: 2022/2023 would be recorded as 2023)
• Proceed With Activity?: N
• Transfer to Region: leave blank
• Notes: SDT 20XX/20XX annual review due by 31 March 20XX. Review set to 1 Jan 20XX to enable the issue of the reminder letters (when recording the review replace 'XX' with appropriate years for this review)

The review will mature on the Action Date coded in the AYR activity and the review letter is issued to the Trust contact. See 'SDT Annual Reviews' section in the Background tab for the reminder process.

If the review has not been removed from the Future Activity List (FAL) screen by 31 March, Workload Management will allocate the review for manual action.

Once the review is created, go to Step 2.

Check all necessary documents have been provided:

• full financial statements completed by a qualified person, such as a member of CPA Australia, Chartered Accountants Australia and New Zealand, or Institute of Public Accountants
• income tax return (if one was required to be lodged)
• statutory declarations from all trustees (with wording applicable to if a tax return was lodged), that all information is given in accordance with s1209S of the Act and the appropriate expenditure of the trust:
• if there have been changes to any trustees, make sure additional declarations are supplied confirming their suitability under S1209Q(1)
• if a waiver has been issued for a pre-2011 trust that cannot change the deed, make sure additional declarations are supplied for continuing adherence to the SDT requirements
• updated Donor Register/Schedule A (where additional contributions have been made, with associated documents verifying the date and amounts of any donations)

Note: the person preparing the financial statements cannot be an immediate family member of the beneficiary, a residuary beneficiary of the trust or a trustee of the trust.

See Resources for a link to the correct statutory declaration that includes the necessary content. That is, if the trust needs to lodge a return and if trustees are professionals.

Have the correct documents been provided?

• Yes, and they were provided:
• before 31 March for the relevant review, see Table 3
• after 31 March for the relevant review, go to Step 4
• No, and it is:
• before 31 March for the relevant review, go to Step 3
• after 31 March for the relevant review, go to Step 4

Issue a General RFI letter using the approved text to ask for any missing or incomplete documents and hold the activity for 14 days plus reasonable postage time.

Once all the documents have been provided, see Table 3.

Consider if a waiver would be appropriate in each case, depending on the circumstances and if the delay was out of the trustee's control. For example, illness or delays caused by accountant.

A waiver:

• can be applied retrospectively from 1 April, if needed
• can be extended if appropriate but cannot be for a period of more than 3 months from 1 April (that is, cannot be extended past 30 June)
• should only be given for the period needed. For example, if the required information can be provided by 1 May, a waiver until 30 June should not be given
• cannot be given where:
• the delay is because of the inaction or action of the trustee
• any of the purpose requirements are not met
• fraudulent behaviour has occurred

Make contact with the trustee(s) before any action or decision to deem the trust non-compliant.

Is it appropriate to grant a waiver?

• Yes, go to Step 5
• No, go to Step 6

Issue the waiver letter (Q888) to the trustee after discussion with the trustee and document the details on the trust record.

The waiver notice must be in writing and contain all of the following:

• the start and end date of the period of the waiver
• the matter to which the waiver applies. For example, the lodgement of the trust's financial statements by 31 March
• the conditions, if any, that the trustee must comply with. For example, the trustee must provide the trust's financial statements

Make sure that:

• the review activity is held for the return of the information, and
• the trustee is aware the trust may be deemed non-complying if the requested information or documents are not returned by the due date

Procedure ends here until the information is provided or the waiver period has elapsed.

A failure by the trustee to meet the annual reporting requirements is in breach of S1209s of the Social Security Act 1991 and may cause the trust to become non-compliant.

If there has been no contact from the trustee or action to rectify the non-provision of documents (including where a waiver period has elapsed), the SDT must be recorded as being wound up and reassessed under regular trust and company rules. See Cessation of a Special Disability Trust (SDT).

If it appears trust funds have been used inappropriately or outside SDT regulations, see Table 4 > Step 4.

Examine the financial statements to determine if the trust still complies with SDT conditions and the funds have been used primarily for the care and accommodation needs of the beneficiary.

If there has been a high or increased level of expenses, further investigation may be required to make sure that the trustee is complying with the spending guidelines and that all expenditure is for the beneficiary's use or enjoyment.

If there has been a significant decrease in cash assets with no expenditure details listed in the financials, further details will be required to make sure spending is within the guidelines.

The SDT (or trustee on behalf of the trust) cannot:

• pay any expenditure that is primarily for the benefit of another party who is not the beneficiary. For example, the school fees for the beneficiary's child
• employ, engage or pay any agent, contractor or professional who is a related party of the beneficiary for any services about the trust fund or the beneficiary. This includes entities of non-related persons who occupy trust positions, except for a professional trustee
• pay for accommodation or a right to accommodation if it is from an immediate family member or a child (irrespective of age) of the beneficiary
• make any distributions of income to the beneficiary or any other person. The trust may not make cash payments to the beneficiary, if these are income or capital in nature. This is separate to taxation requirements which shows all income distributed to the beneficiary
• make any cash payments unless it is a reimbursement for expenses incurred by or on behalf of the trust. These must be listed as an expense of the trust and not a distribution of profit

There is provision for the trust to pay for the beneficiary's health, wellbeing, recreation, independence and social inclusion up to the discretionary spending limit each year.

This is separate to the care and accommodation needs of the beneficiary that are not limited, and other ancillary costs which cover the maintenance of trust assets, expenses in generating income and trust administration. See Resources for a list of possible expenses.

Inappropriate expenditure over the discretionary spending limit, or where not primarily for the benefit of the beneficiary, can be considered for waiver if the total inappropriate expenditure is below $5,000.

See References for a link to the Social Security Guide 4.14.3.60 Waivers for special disability trusts.

The specific rules governing SDT and liabilities are:

• There should not be any loans, either to or from an SDT and the principal beneficiary, or a related party
• If any liabilities appear on the balance sheet it will require investigation to determine the nature of the liability
• The only exception for related parties is where they are awaiting reimbursement for costs incurred on behalf of the trust and listed as creditors. These should be short term in nature and not carry from one financial year to the next
• The trustee must not allow trust property to be used as security for loans or debts of the beneficiary, their partner, or any third party
• There are no waivers for borrowing, and if not able to be readily rectified the trust will lose its SDT status from the date of the transaction
• Any contributions by the principal beneficiary or their partner (if an eligible contribution) or by the donor, must be shown under the equity section of the balance sheet and not as a liability
• Unexpended income should be shown as retained profit under equity and not as a liability to the principal beneficiary

The trust may own the beneficiary's home, and as with other legislation the home and curtilage is an exempt asset. Related parties may not use excess curtilage for any purpose even if market rent is paid.

If the trust owns any real estate, the delegate must decide if a valuation is required. A valuation is not required if any of the following apply:

• The property was purchased less than 12 months ago
• A valuation was completed within the last 24 months
• The property is exempt
• It is believed the market value of the real estate is insufficient to cause the assets of the trust to exceed the concessional asset limit
• The allowable assets limit of the beneficiary will not be exceeded, even if the market value of the property is substantially higher

A valuation may need to be requested to confirm the value of a gift (and the concession or deprivation amount) even if the property is an exempt asset. The trust will lose concessional status if it owns any:

• business property farm or holiday home used by a related party even if market rental is paid. For example, the business premises of a small family business
• in-house assets as indicated on the balance sheet. An in-house asset is a loan or investment to a related party. These arrangements are typically not at arm's length. For example, shares in a related company

From the balance sheet or donor register, does it appear that there have been further contributions to the trust?

• Yes, make sure a Donor Register (Schedule A) has been lodged and evidence provided of any contributions throughout the year.
  If this includes real estate, make sure the following is provided:
• Real Estate details form (MOD R)
• Title deed verifying trust ownership
• Office of State Revenue confirmation of concession (if applicable)
• any other evidence to show the trust owns the property

Also check that none of the contributions are:

• from the beneficiary or their partner, except for a bequest or superannuation death benefit within 3 years of receipt
• compensation received by or on behalf of the beneficiary or their partner
• conditional in nature. For example, expectations of continual use
• from the settlor
• in breach of the specific requirements of the trust deed, or could cause a breach to occur
• contribution of property which has an encumbrance or mortgage secured over it

Note: contributions of a bequest from the beneficiary outside the 3-year time limit may be waived by seeking approval from the Level 3 Helpdesk.

The trustee must be given an opportunity to rectify any potential breaches. In cases where a breach cannot be rectified and a waiver cannot be issued the trust loses its concessional status.

Once all documents have been provided, and the contribution recorded on the Trust/Co SDT Contribution Detail (TRCD) screen, go to Step 5.

Do the financial statements and associated documents indicate the SDT is complying with the requirements?

• Yes, see Table 4
• No, and there is missing information, or potential non-compliance:
• Issue a General RFI letter to ask for correction of the financial statements and/or additional documents
• Advise the trustee of the request made and hold the review activity pending return of the information, allowing 14 days and reasonable postage time
• If after 31 March, issue a waiver (if appropriate) in addition to the request letter, see Table 2
• Procedure ends here until the documents are returned

Has the beneficiary worked in open employment for more than 7 hours per week in the last 12 months, that is not a one-off or irregular occurrence?

• Yes, refer to Income Support Means Test team
• No, see Table 4

The event date for the assessment of a Special Disability Review will be the earliest date of the following:

• the date the trustees have signed the financial statements
• the date the trustees have signed the tax returns (if required to lodge)
• the date the accountant has signed the financial statements or tax return
• any embedded dates

If none of the above apply, the date of receipt is the date of event.

The exception to this is where a notifiable event has occurred, for example, a contribution has been made, in that case it would be the date the event occurred.

Go to Step 2

When all required documents are available:

• make sure that all assets of the trust are updated and any additional contributions are recorded on the TRCS (Trust/Company Contribution Summary) screen
• ask for valuations for any real estate, if appropriate
• check the TFN has been recorded (if available), and trustee/contact details are up to date
• check the homeowner status, and update if required on the beneficiary's record
• document the Annual Review on the trust record using the template provided for that year
• make sure the review for the following financial year is recorded on the Future Activity List (FAL) screen

Note: with all contributions (existing or previous), review what gifting concessions remain applicable. For example, a donor may have turned Age Pension age, or claimed an income support payment, and may now be eligible for a gifting concession.
See Gifting concessions to a Special Disability Trust (SDT).

• If there are outstanding issues, go to Step 3
• Otherwise, procedure ends here

Waivers allow time for the trustee to take action to rectify and comply with SDT requirements. There are limitations as to when and how long a waiver can be given.

For all trusts, regardless of the date they were established, a waiver can be issued, if appropriate, for the following:

• Inappropriate expenditure:
• A waiver can be given, under section 1209N of the Social Security Act, having regard to the degree, frequency of non-compliance and the circumstances under which it occurred. Note: where the expenditure is due to fraudulent behaviour a waiver cannot be given
• A waiver can only be given if the total non-compliant expenditure in a financial year, including any excess of the discretionary spending limit, is no more than $5,000 of that limit. Resources has a list of current and historical discretionary spending limits
• Delay in providing financial statements for an annual review:
• The CAO can give a waiver for a maximum 3 months for a delay in providing financial statements under section 1209S of the Social Security Act, if the delay is not due to the actions or inactions of the trustee
• Contributions from the beneficiary or their partner outside the 3 years limitation may be waived where:
• transfer of the asset to the trust was delayed because of court proceedings relating to the asset
• assets were previously transferred to a trust intended to be a special disability trust, or
• it can be shown that the intention was to transfer the assets within the allowable 3 year time frame
• the delegate for a waiver notice for contributions from the beneficiary or their partner outside the 3 years limitation is the EL2 Director in the Income Support Means Test team. Email a completed template to Income Support Means Test.

For trusts existing before 1 January 2011 that are protective and unable to vary their Deed:

• All trustees must provide an additional statutory declaration that they will comply with the requirements of a Special Disability Trust
• A waiver notice can be issued for a period up to 12 months, that is, until the following 31 March, to align with the annual reporting requirements

Has the trustee taken the appropriate action to rectify any outstanding issues?

• Yes, finalise the review and return to Step 2
• No, go to Step 4

When the trust does not comply with the SDT requirements and a waiver notice cannot be issued or the waiver period has expired without rectification, the trust will be deemed as non-compliant.

In this case, the trust will no longer have the concessional status of a SDT and will be subject to the regular trust and company rules from the date the delegate decides that the trust no longer complies.

See Cessation of a Special Disability Trust for more information.

Are there reasons to believe the trustee may have inappropriately used the trust funds:

• Yes, go to Step 5
• No, procedure ends here

A trustee is the person or entity (if a corporate trustee) who is responsible for using trust assets primarily for the care and accommodation needs of the beneficiary.

If there is any indication that the trustee(s) may have misused the trust funds for their own purposes, or contrary to the provisions of the trust deed, refer the case to the Income Support Means Test team for further investigation.

An audit of an SDT can be requested by:

• the principal beneficiary
• an immediate family member of the principal beneficiary
• a person who is, under law, the legal guardian or financial administrator of the beneficiary
• a person who is otherwise acting as the principal beneficiary's guardian long term
• the Secretary

Although an audit can be requested at any time, Services Australia would only ask for it if there is an indication of funds having been used inappropriately or outside the SDT regulations, or during the review of a decision. The minimum period an audit must cover is a single financial year with the maximum being 5 financial years.

The audit report must cover:

• if the financial statements give a true and fair view of the trust's financial position and performance as at 30 June in the relevant financial year
• if the trust has met all or specified clauses/provisions of the trust deed, if the person requesting the audit has requested this to establish this has occurred

The audit report must be prepared by a member of:

• CPA Australia
• Institute of Chartered Accountants in Australia, or
• Institute of Public Accountants (formerly known as National Institute of Accountants)

The audit report cannot be prepared by an immediate family member of:

• the beneficiary
• the trustee, or
• the person or company who prepared the financial statements

If an audit is requested from the trustee, hold the review activity or in Customer First, create a manual review on the Activity Registration (AYR) and complete the fields as follows:

• Service Reason: TRF
• Activity Type: TRV
• Source: INT
• Date of Receipt: today's date
• Review Reason: SDT (Special Disability Trust Rev)
• Resubmit Date: date documents requested by
• Action: MFR (Manual Follow up Required)
• Action Date: as per Resubmit Date
• Keywords: SDT
• Proceed With Activity?: N
• Transfer to Region: leave blank
• Notes: 'Audit documents requested from the trustee by xx/xx/xxxx. Return to OB 043-04070070 to action.'

The review will mature on the Resubmit Date coded in the AYR activity. Workload Management will allocate the review for manual action.

If not supplied within a reasonable time the trust may lose its concessional status as an SDT. This can also occur if the statements are not prepared by an authorised person (as detailed above).

Procedure ends here until the audit documents are returned.

If the audit documents are supplied, and have been prepared by an authorised person, review the financial statements. See Table 2.