Trust distributions & Family Tax Benefit

[GreatPig]

Our trust deed, from MGS, prohibits distributing to family members on means-tested Centrelink benefits.

My wife's neice (I know, the last time we'll possibly be able to distribute to a neice under the new rules) gets Family Tax Benefits parts A & B for her young daughter. From the Centrelink website, I see these two benefits are means-tested, so assume we can't distribute to the neice.

However, does that stop us distributing to the daughter directly? The Centrelink site says that these benefits are only available if the child earns less than $12,287 a year (the parents are well under $150K a year). She currently earns nothing and the distribution would be less than that (the limit I'm told is $1,666 this year for a minor).

From the Centrelink site, it seems that the daughter earning $1,666 a year won't affect her mother's FTBs, and I'm assuming it's not the child that is receiving the means-tested benefit, but the parents.

This is also relevant for a grandchild, where I gather the mother is receiving the FTBs and we want to distribute to the grandchild who has no other income.

Thanks.

GP

 

[Ebbie]

Hi GP,

I asked the same question last year and I rang Centrelink to confirm it.

Copy and pasted from my notes:

"Distributions to minors do not affect the Family Tax Benefit A and B or the Childcare Benefit of the parents, unless the child is:

a) aged between 5 and 15 years, not undertaking full-time study and receives income of $11 929 or more (for the 2007-08 financial year); or

b) aged 16 or over and receives income of $11,929 or more."

Yes, the first $1,667 received by a minor is tax free.

 

[GreatPig]

Thanks, Ebbie. That matches my interpretation then.

Cheers,
GP

 

[D.T.]

prohibits distributing to family members on means-tested Centrelink benefits.

Just purely out of curiosity, I'm wondering why your trust has this?

 

[GreatPig]

I believe it's because there is (or possibly was) a potential issue with Centrelink benefits being denied if someone is a beneficiary of a trust, even if they never receive a distribution. I gather this is to have written proof that such a person is not a beneficiary of these trusts.

This is just my understanding though.

GP

 

[Ebbie]

I queried this clause last year because Centrelink confirmed I could distribute up to $6,032 p.a to family members on sickness/carers benefits without it affecting their pensions, but the trust deed wouldn't allow it.

I have an MGS trust deed too and my advisor said I could amend that clause if I wanted to and it should then be fine. I've left it as is for now.

 

[austini]

Hi Gang,

If your deed allows it you can make a trust distribution to a beneficiary on a Centrelink benefit/pension. However you must complete a rather lengthy form to prove that the beneificiary is not the source of any assets to the trust AND he/she has no influence over the appointer etc. This is referred to as the Source and Control test. Also each year I get a letter from Centrelink asking me to confirm that there has been nothing that has changed that would result in failure of the Source and Control test etc?

We make a small distribution to my mother-in-law to help her out a bit which given the current cost of living pensioners are doing it tough if they don't have much in the way of savings. But we make sure the distribution is less that the maximum amount of income she can receive without reducing her pension.

We also have another Trust deed which is supplied my MGS and I noticed one day that there is a clause in there disallowing any distributions to anyone on a Centrelink benefit. I see this as a disadvantage and it was just very fortunate we chose to use the old Disc Trust to make the distribution as at the time I didn't realise the MGS deed contained that restriction. I wouldn't be surprised if some out there may be doing the wrong thing without knowing it. For that matter I'm sure that a lot of people with trusts are probably doing something the deed doesn't allow because I don't think too many bother to really read the detail. I keep our affairs very simple nowadays to avoid any issues.

Cheers - Gordon