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

Annual reviews of SDTs occur each year, regardless of whether the trust holds any assets other than the settled sum or not. This is a legislative requirement and cannot be avoided.

When the annual review matures, a letter will be sent to the nominated contact of the SDT to request:

• Financial statements
• Tax return (if lodged)
• Statutory declaration(s) from all trustee(s), and
• Donor Register (if new contributions have been made)

After 35 days, a TACSDR reminder letter issues to the contact (as well as all other linked parties) to request the financial statements and highlight the non-lodgement of the review.

After a further 28 days, a second TACSDR reminder letter is issued to the contact and all linked parties.

Has a customer contacted regarding the annual review?

• Yes, go to Step 2
• No, for initial and general enquires, See Special Disability Trust (SDT) - initial contact for escalation to a CAO in the SDT processing team

Is the contact from any of the parties linked to the trust?

• Yes:
• If person is calling or attending to query the 28 day time limit mentioned in the letters, advise that the annual review documents need only to be supplied by 31 March. If this will occur, DOC the contact on the trust record (found on the review letter). No further action is needed
• If contact is to advise that the requested financial statements will not be available to lodge by 31 March, send a Fast Note for the Service Reason of TRF - Trust and Company, auto text category Complex Assessment and CAO Special Disability Trust template. Request for CAO action> CAO Special Disability Trust.
  Note: CAO intervention is requested to waive late lodgement of the financial statements and the reasons for the delay given by the customer
• 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 FAL screen using the date of receipt of the scan.
  If not found, request 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 documentation to the trust record. Select the SDT review activity from the FAL screen
• No, and the person making contact is not an office holder, nominee or nominated contact, only provide general information, and request one of those contact Services Australia

Procedure ends here for Service Officer.

CAOs in SDT processing team see Table 2.

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
• Activity Type: TRV
• Source: INT
• Date of Receipt: today's date
• Review Reason: SDT (Special Disability Trust Rev)
• Resubmit Date: 1 January of the following year
• Action: FMI (Form Issue)
• Action Date: as per Resubmit Date
• Keywords: leave blank
• Proceed With Activity?: N
• Transfer to Region: leave blank
• Notes: leave blank

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

Check all necessary documentation has 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 whether 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 ensure additional declarations are supplied confirming their suitability under S1209Q(1)
• if a waiver has been issued for a pre-2011 trust that cannot amend the deed ensure 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, whether the trust needs to lodge a return and whether trustees are professionals etc.

Has the correct documentation been provided?

• Yes, see Table 3
• No, and
• it is before 31 March for the relevant review, go to Step 2
• it is after 31 March for the relevant review, go to Step 3

Issue a manual letter using the approved text to request any missing or incomplete documentation and hold the activity for 14 days plus reasonable postage time.

Once all the documents have been provided see Table 3

Consider whether 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.

If the delay is due to the inaction or action of the trustee it may not be possible to issue a waiver, especially if this has occurred in multiple years. Ensure contact with the trustee(s) before any action or decision to deem the trust non-compliant.

• If the financial statements (and tax return if one is lodged) are not available for reasons outside the trustee's control, and no other waiver has already been issued for the financial year, extend the review period for up to the maximum 3 month period (or as long as required by the trustee)
• Issue the waiver letter after discussion with the trustee and document on the trust record. Ensure 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

Have the documents been received within the approved waiver period?

• Yes, see Table 3
• No, go to Step 4

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, the SDT must be vested 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 SDE regulations, see Step 4 in Table 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 ensure 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 ensure 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 in relation to the trust fund or the beneficiary. This includes entities of non-related persons who occupy trust positions, with the exception of 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, whether 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 in excess of 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’s 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 and the trust may be non-compliant
• 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

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:

• the property was purchased less than 12 months ago, or
• a valuation was completed within the last 24 months, or
• the property is exempt, or
• 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, or
• 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, ensure a Donor Register (Schedule A) has been lodged and evidence provided of any contributions throughout the year
  If this includes real estate, ensure the following is provided:
• Module R (Real Estate)
• 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, with the exception of a bequest or superannuation death benefit within 3 years of receipt
• compensation received by or on behalf of the beneficiary or their partner
• conditional. 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, go to Step 5

• No, 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 manual letter to request correction of the financial statements and/or additional documentation. Include the Annual Reporting Requirements of a Special Disability Trust and Common Errors with Special Disability Trust Financial Statements.
  See Resources > Publications

Advise the trustee of the request, and the review activity is held for the return, allowing 14 days and reasonable postage time. If this is after 31 March, issue a waiver (if appropriate) in addition to the request letter.

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

When all required documentation is available:

• ensure that all assets of the trust are updated and any additional contributions are recorded on the TRCS (Trust/Company Contribution Summary) screen
• request 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 home owner 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
• ensure the review for the following financial year is recorded on FAL

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.

If there are outstanding issues, go to Step 2.

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:

• inappropriate expenditure - a waiver can be given, under section 1209N of the Social Security Act, having regard to the degree, frequency of noncompliance and the circumstances under which it occurred. A waiver can only be given if the total noncompliant 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
• a waiver can be given 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 for a period no more than 3 months following 31 March from the relevant tax year
• where the expenditure is due to fraudulent behaviour a waiver cannot be given

Except for waivers relating to late lodgement of financial statements, the delegate can extend the waiver for an additional 3 month maximum period, up to a total of twelve months, 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 as a result of court proceedings relating to the asset
• assets were previously transferred to a trust intended to be a Special Disability Trust, or
• intention was to transfer the assets within the allowable three year time frame

Delegate for the waiver notice 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. Return to Step 1
• No, go to Step 3

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 makes a decision that the trust no longer complies.

See Cessation of a Special Disability Trust for more information.

If there are reasons to believe the trustee may have inappropriately used the trust funds, go to Step 4.

Otherwise, 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 request 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:

• whether 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
• whether 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 Followup 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.