Protective and statutory trusts for persons unable to handle their own affairs 043-04110050

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Example of an assessment of a protective trust established after 7:30 pm on 9 May 2000

John is single, 35 years old and works at the local meat works. Four years ago, John's sibling Sally received severe brain injuries as a result of a motor vehicle accident. Sally received a large compensation settlement which was placed in a trust.

John's widowed parent Alice, aged 70, looks after Sally. Because Sally is unable to manage their own financial affairs, Alice has official control over the money in the trust. Alice conscientiously administers the fund for Sally's exclusive benefit.

Alice is concerned about losing the pension, as it is the only source of income. Alice visits the local Centrelink office and sees a Financial Information Service (FIS) Officer. Alice is relieved to learn that the income and assets from the trust will not affect the pension as the trust funds originated for, and are used for, Sally's benefit.

Alice is not getting any younger and is also concerned that one day control of the trust will be handed over to John. John's job is a bit shaky and in the past has spent periods of time on income support payments. Alice is relieved to find out that if John has to take over the management of the trust John would still be able to get government help, if required, provided the trust funds continue to be used for Sally's exclusive benefit.

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Collection of information for annual reviews

The Senior Master’s Office in Victoria holds funds awarded to customers by Order of the Court.

Each year the SMO sends a listing of all of their customers who are in receipt of an income support payment.

The listing includes the customer’s name, CRN, details of the value of each investment held by them, the annual taxable income, details of any capital gains included in that income and whether the customer’s home is held by the trust.

Workload Operations take the information from the list and create a document on each record with the details relevant to that customer.

These documents are then allocated to CAOs for action.

There will be no source document scanned to the customer’s record.

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Assessment of capital gains

Section 1208 of Social Security Act 1991 allows Centrelink to assess all capital gains as income when determining an entity's income. The capital gain or loss assessed is the total amount of the gain or loss, less any expenses relating to that gain, without any discounting for inflation or any other amount that is allowed under the Income Tax Assessment Act. For example, 50% discounting or prior year losses.

The gross capital gain from normal trading should be assessed. Examples of normal trading are the sale of shares, managed investments on a regular basis.

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2021-22 capital gains assessment

In 2021-22 the SMO advised that the Common Fund No 3 investment had been restructured and this had resulted in much higher capital gains for investors in that year.

Means Test (Level 3) made a ruling for 2021-22 only that the capital gains were not part of normal trading and that the attributed income could be reassessed based on an estimate. The estimate used was the 2021-22 income excluding the capital gain.

This ruling was for this year only and should not be applied in future years unless a further ruling is made by Level 3.