Topics on special disability trusts and their beneficiaries

In a special disability trust, the Main Residence Exemption (MRE) usually applies to a home held by the trust for the main beneficiary, as long as that person lives there. Recent changes in the law now ensure that the MRE applies to these trusts just like it would if the beneficiary owned the home directly.

Now, the MRE won't apply if:

1. The beneficiary was a foreign resident when a Capital Gains Tax (CGT) event happens to the home in the trust, unless they meet the life events test.
2. The beneficiary was an excluded foreign resident when they passed away, and a CGT event happens to the home in the trust after their death.

See Sections 118-218(5) and 118-225(5) for details.

Additionally, if the beneficiary was an excluded foreign resident when they passed away, any MRE benefits accumulated by the trust while holding the home are denied to a beneficiary who inherits the home after the beneficiary's death. In this case, the inheritor's initial cost base for the home is the same as the trust's just before the beneficiary's death. Refer to Sections 118-225(5), 118-227(1)(ca), and (3).

These changes ensure that the MRE for a special disability trust aligns with how it works for an individual who owns a home themselves.

Should you have any questions or need assistance, feel free to reach out to                            Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment through our live calendar.