in the 2009–10 Federal Budget, the government announced that it will ensure the unexpended income of a special disability trust is taxed at the beneficiary's personal income tax rates rather than the top personal tax rate plus Medicare levy. This will take effect from the 2008–09 income year.

The government also announced that it will extend the capital gains tax (CGT) main residence exemption to include a residence that is owned by the trustee of a special disability trust and used by the beneficiary as their main residence, with effect from the 2009–10 income year.

Press release

Information about the government’s 2009–10 budget announcements of the changes to taxation of special disability trusts is available on the Minister for Families, Housing, Community Services and Indigenous Affairs website.

Legislation and supporting material

The Assistant Treasurer issued a Press release on 26 May 2010 to notify that the changes for the taxation of unexpended income was introduced into Parliament on 26 May 2010. Tax Laws Amendment (2010 Measures No.3) Act 2010 received royal assent on 29 June 2010. The Explanatory Memorandum is available at the Comlaw website.

Administrative treatment for main residence exemption

The ATO will accept tax returns as lodged during the period up until royal assent. Past year assessments will not be reviewed until the outcome of the proposed amendment is known.

After the new law is enacted, taxpayers will need to review their positions for the 2009–10 income year:

• Those taxpayers who claimed a main residence exemption which accords with the changes do not need to do anything more.
• Those taxpayers who declared a capital gain which would be exempt under the proposed changes can seek amendments and if a reduction in liability results, interest on overpayment will be paid.