Planning for a loved one with a disability is challenging. From 1 July 2023, further stamp duty and land tax exemptions regarding the primary residence of a person with a disability have been introduced by The State Taxation Acts Amendment Act 2023 (Vic).
Increased Special Disability Trust (SDT) Duty Exemptions
SDTs can hold assets on behalf of an eligible person with a disability while exempting those assets (up to a cap) from any pension means testing – these have been a useful planning option for some time. You can find further information regarding SDTs in our previous article series.
Previously, there has been a stamp duty exemption available for a transfer of property to a SDT up to the value of $500,000 – with duty payable to the extent the property exceeds that value. New Section 38A of the Duties Act 2000 (Vic) now provides that:
- A stamp duty exemption is available for a property that will be the primary residence of the person with a disability up to the value of $1,500,000; and
- The stamp duty exemption up to the value of $500,000 remains for any property that is not a primary residence.
The additional requirements are that:
- The transfer must be from an immediate family member (defined to include parents, step-parents, guardians, grandparents or siblings);
- There must be no consideration paid (ie/ a gift, not a purchase); and
- For the primary residence exemption, there must already be a residence constructed on the property that is intended to be used as the beneficiary’s primary residence.
Additionally, the Capital Gains Tax (CGT) exemption in Section 118.85 of the Income Tax Assessment Act 1997 (Cth) remains applicable and is uncapped as to value.
Duty exemption for the transfer of a home to a person with a disability
The transfer of a home directly to an eligible person with a disability may also be exempt from stamp duty up to the value of $1,500,000. This exemption is similar to the SDT exemption outlined above, except that it allows the disabled person to own the home directly, rather than it being held on their behalf via a SDT.
In addition to the requirements outlined above, the transferee must have, prior to the transfer, an assessment from Services Australia or the Department of Veterans’ Affairs that confirms that they would be eligible to be the beneficiary of a SDT.
This exemption is not available if there will be joint owners who are not both eligible persons with a disability.
The potential benefit of this option is it allows people to take advantage of the duty concession without the trouble of creating a SDT, which can have associated administrative burden and cost. However, it means that the property is then under the direct control of the person with a disability – and consequently available for them to sell, transfer or otherwise dispose of as they wish (and form part of their estate upon their death). So, if they are not a person who should reasonably be managing their own assets, then this option would not be appropriate.
The CGT implications of a transfer would need to be considered and the specific exemption available for a transfer to a SDT does not appear to have been updated to be consistent with this duty exemption.
A primary residence is exempt from means testing regardless of whether it is held in a SDT or personally, so direct ownership will not in itself impact pension eligibility – although the value of other assets exempted from means testing will change subject to whether the disabled person is a home owner.
Land tax exemption for a home occupied by a family member with a disability
A home owned by an immediate family member that is used as the primary residence of an eligible person with a disability is now exempt from land tax under Section 54(1)(c) of the Land Tax Act 2005 (Vic).
The requirements are that:
- The occupant of the property must have received an assessment from Services Australia or the Department of Veterans’ Affairs that confirms that they would be eligible to be the beneficiary of a SDT;
- The property must be owned by an immediate family member; and
- There must be no rent paid by or on behalf of the disabled person.
This provision should provide relief where a residence is held for the use of a disabled family member. With appropriate estate planning, such residence could potentially be passed to a SDT (or other form of protective trust) via Will on the death of the property owner – a scenario which likewise has applicable stamp duty and CGT exemptions and could therefore be cost effective.
Key takeaways
Providing an appropriate residence for a person with a disability is often a key aspect of estate planning. There are now further cost effective options as to the ownership of their primary residence, but care needs to be taken in assessing the appropriate structure.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to your organisation.