Editors --- "DSP: treatment of income from protective trust" [2011] SocSecRpr 8; (2011) 13(1) Social Security Reporter, Article 8

• THOMPSON and SECRETARY TO THE DFHCSIA
• Background
• The issue
• The law
• Consideration
• Formal decision

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DSP: treatment of income from protective trust

THOMPSON and SECRETARY TO THE DFHCSIA

(2010/1048)

Decided: 22nd December 2010 by R.M. Creyke

Background

Thompson had received disability support pension since 1985. In December 2004, Thompson’s father established the Adam Thompson trust. The assets of the trust were shares, managed funds, and bank accounts in the name of Adam Thompson. His father was the trustee and Adam the principal beneficiary.

Thompson’s father advised Centrelink about the trust in 2005. No action was taken by Centrelink to change the basis on which disability support pension was calculated.

On assessment by a number of complex assessment officers the method of calculation was changed. It was decided that Thompson was an attributable stakeholder of the Adam Thompson Protective Trust and that the financial investments could not be deemed, but rather the pension should be based on the income of the trust. The effect of this was to reduce the amount of pension by approximately $127 per fortnight.

Following this assessment, in January 2010 Centrelink decided to assess the rate of disability support pension on the basis of actual income from the protective trust. Prior to this they had been using the deemed income of Thompson’s financial assets.

Thompson requested a review of this decision which was affirmed by an authorised review officer and in June 2010 by the Social Security Appeals Tribunal.

The issue

The issue in this appeal was whether income from the Adam Thompson protective trust should be attributed to Thompson and his disability support pension calculated on the basis of this.

The law

The sections dealing with assessment of ordinary income and assets are contained in parts 3.10 and 3.18 of the Social Security Act 1991 (the Act).

Section 1207 states:

1207 Simplified outline

The following is a simplified outline of this Part:

• This Part sets up a system for the attribution to individuals of the ... income of ... private trusts (sections 1207Y and 1208E)

• Attribution starts on 1 January 2002.

• For ... income to be attributed to an individual:

(a) the ... trust must be a designated private trust (sections 1207N and 1207P); and

(b) the ... trust must be a controlled private trust in relation to the individual (sections 1207Q and 1207V); and

(c) the individual must be an attributable stakeholder of the ...trust (section 1207X).

• A ... trust will be a controlled private trust ... if the individual passes a control test or a source test.

Consideration

The Tribunal considered firstly the question of whether the trust was a ‘controlled private trust’.

To do this it must pass either the ‘control test’ or the ‘source test’.

It was argued that Thompson could not meet the control test because of his intellectual disability which prevented him from exercising effective control. However the Tribunal noted that the control does not have to be exercised by Thompson but could be exercised by a parent or a trustee. Thompson’s father as trustee and parent therefore met the definition and it was concluded that the control test was satisfied.

In relation to the ‘source test’, the Tribunal was also satisfied that this criterion was met as Thompson was the sole source of the financial assets of the trust.

A trust is a ‘designated private trust’ unless specifically exempted. None of the exemptions applied.

The Tribunal therefore concluded that for the purpose of assessment of disability support pension, the protective trust was a controlled private trust and a designated private trust.

In those circumstances s.1208 established that the income from the trust was to be attributed, subject to the Secretary’s discretion (s.1207X (2) (c)).

This discretion must be exercised according to principles set out in the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (the Principles).

The nine factors in the Principles were considered by the Tribunal and it was found that all applied other than the third factor which requires consideration of whether the individual can reasonably be expected to exercise effective control in relation to the trust and the extent of any control. The Tribunal found that due to his disability, Thompson could not do this, however this was not sufficient to justify application of the discretion.

The Tribunal stated as follows:

On balance, although Mr Adam Thompson’s circumstances do not meet the control test in the Principles, he is still the source of the funds in the Trust and the only beneficiary of income from the Trust. It is clear that the intention is that the corpus and income from the Trust are to be used solely for his benefit as and when he needs the monies. Given these circumstances the Tribunal finds that Mr Adam Thompson is an ‘attributable stakeholder’ for the purposes of section 1207X of the Act.(Reasons, para. 37)

The Tribunal then considered whether the hundred percent attribution of income should apply and found no grounds for varying the attribution rate.

Formal decision

The AAT affirmed the decision of the SSAT.

[R.P.]