Booklet: Special Disability Trusts (SDT) (Chapter 9 – Are there beneficial taxation consequences?)

Booklet: Special Disability Trusts

Below is Chapter 9 of our ‘Special Disability Trusts’ booklet. To read the other chapters of our booklet, click the links below:

Please note that the information in this booklet is current as at the 2024/2025 financial year.

A trust is a separate legal structure in relation to taxation. Trustees have an obligation to submit tax returns for the SDT fund.

However, SDTs are not subject to the higher income tax rate which normally applies to trusts. Instead, an SDT’s unexpended income is taxed at the beneficiary’s personal income tax rate rather
than at the highest marginal personal tax rate. For this reason,

the beneficiary of an SDT is treated as though they are presently entitled to all of the net income of the trust.

If the principal beneficiary of the trust is required to lodge an income tax return, the amount of the net income of the special disability trust should also be included in their individual tax return. Any tax paid by the trustee of the special disability trust should be claimed as a credit on the individual tax return, which ensures there is no double taxation.

A Capital Gains Tax exemption applies for all CGT assets (property contributions) voluntarily transferred into a special disability trust for no value.

A CGT exemption also applies to the intended recipient of the principal beneficiary’s main residence after their death, where the intended recipient’s ownership interest ends within two years of the principal beneficiary’s death. This exemption requires that at the time of the principal beneficiary’s death the dwelling was the deceased’s main residence, the dwelling was not used to produce assessable income and the trust was an SDT.

To download a PDF of our booklet, enter your email below.

 

The information contained in this post is current at the date of editing – 11 September 2024.

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