Louise Biti explores the issues for providing advice where a person with a disability is involved, including the main concessions and special considerations that need to be taken into account.
With statistics in 2009 showing that, in Australia, just under one in five people had a reported disability (that is, 4 million people, representing 18.5 per cent of the Australian population) and 2.6 million people were caring for someone with a disability, it is likely that you will need to provide advice to a client with a disability, a carer, or a client with a child who has a disability.
The basics for your advice follow the same principles and process as for a client without a disability; but special consideration may be needed, and additional concessions may be available.
An overview of advice
The chart above provides an overview of the main issues that should be considered or that may have special application for a disabled person.
Generating income
A person who suffers from a physical or mental disability may not be able to earn an income to support themselves and their family.
Depending on personal circumstances and the reason for the disability, the lost earnings may be replaced by:
• Centrelink income support;
• Workers’ compensation;
• Insurance claims; and
• Compensation payments (including structured settlements).
Personal injury claims can be paid as structured settlements, although these have not been very popular. The benefit is to provide a tax-free income as well as access to a lump sum, but specific conditions apply. This option can help a person to manage large lump sums but could result in a smaller estate value if the person dies too early. Further information on structured settlements can be obtained from the Tax Office.
Centrelink income support can also be paid to a person who is a carer for a disabled person. If the carer is over age pension age, they can choose to apply for the carer payment or the age pension. The age pension is generally more flexible with less restrictions, but the carer payment can provide an extra bereavement payment if the person being cared for was single and passes away.
Superannuation issues
The primary purpose of superannuation is to provide retirement benefits, but disability benefits qualify as a secondary purpose. To this end, some concessions apply for:
• Contributions to super
• Access to benefits
• Taxation on benefits under age 60.
Contributions
Often overlooked is the fact that a person who suffers an injury may be able to contribute settlement proceeds to superannuation without the amount counting against the contribution caps.
Personal contributions will not count against the non-concessional contribution cap if the amount is paid from the personal injury portion of:
• A structured settlement payment
• An order for a personal injury payment or
• A workers’ compensation payment commuted into a lump sum.
The contribution must be made within 90 days of receiving the payment or order. When making the contribution, the trustee must be notified using the Contributions for personal injury form (NAT 71162) available from the Tax Office.
Access to benefits
Preserved superannuation benefits can be accessed under either permanent or temporary incapacity conditions of release.
Temporary incapacity only allows benefits to be released as a non-commutable income stream for the period of incapacity to replace previous income. Minimum member benefits cannot be used to pay the income stream, so this condition can usually only be triggered if the person had a salary continuation insurance policy or a self-managed super fund (SMSF) uses reserves to make the payments.
Permanent incapacity allows a full release of benefits as either a lump sum or a commutable income stream.
Taxation of benefits
All payments received from a taxed fund after the age of 60 are tax-free and disability tax concessions apply under age 60.
Benefits paid as a lump sum can include the calculation of a tax-free disability benefit representing the future service portion of the payment. A disability income stream will be eligible for a 15 per cent tax offset.
If benefits are required as an income stream, the tax concessions may be maximised by taking a disability lump sum (to calculate a tax-free amount) and rolling this to a new superannuation fund. An application is then lodged with the new trustee to pay the benefits as a disability income stream. This may require resubmitting medical evidence with the trustees of the second fund.
Member of an SMSF
If the disabled person is a member of an SMSF, he/she needs to be able to continue in the role as trustee. If he/she suffers from a physical disability, this may not present a problem but issues could arise if the person suffers from a mental incapacity and is no longer able to understand and undertake the duties and responsibilities of trustee.
Another person could replace the member as trustee if that person holds a valid enduring power of attorney. Otherwise, the person may need to leave the fund and rollover benefits to a public offer fund or convert the SMSF into a small APRA fund.
