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The Way Forward – A New Disability Policy Framework For Australia

Part 5: Improving savings and taxation incentives for privately - funded services

Recommendation 2

DIG recommends that the feasibility study into a National Disability Insurance Scheme includes further examination of the potential for any of the following measures to enhance additional private provision for people with disability.

  • Action on the recommendations of the Senate Standing Committee on Community Affairs in its report on Special Disability Trusts, Building trust: Supporting families through Disability Trusts, October 2008.
  • Setting up a savings plan with incentives for family members to save for the short- to medium-term financial needs of a family member with disability.
  • Removing taxes on essential goods and services required by people with disability, their families and carers.
  • Introducing a Disability Support Tax Rebate into Australia’s tax system to recognise the work-related costs of people with disability and carers.
  • Development of private housing and services models that could complement a NDIS.

This would require consultation with other parts of government, including importantly, the Review into Australia’s Future Tax System.

Key DIG findings

The proposed new disability policy framework should include a number of measures to boost private savings, promote asset transfers, recognise the additional costs of people with disability, their families and carers and remove tax imposts which are inhibiting private provision.

The absence of an entitlement for care and support for people with disability has created barriers for private investment. Many creative options for private investment in housing flounder, for example, because there is uncertain and unreliable care and support. Families who are willing to provide for relatives with disability are often thwarted by the fragmented and uncertain service system.

Private investment will not and should not substitute for a basic level of individualised care for people with disability. A core system of entitlements, as proposed in a NDIS, would provide a strong platform for additional private contributions towards the care and support of people with disability. The final design and implementation of the following recommendations to promote private provision will depend on government progress towards establishing the scheme. Without the scheme, any supplementary measures will make a much less significant contribution to dealing with unmet need.

Special Disability Trusts

In September 2006, Special Disability Trusts (SDTs) were introduced to assist parents and immediate family members wanting to provide a financial contribution towards current or future accommodation and care of a family member with severe disability. SDTs were designed to allow families to make these contributions without reducing the person's entitlement to a DSP, the Age Pension, a pension from Veterans’ Affairs, and related benefits. However, since then very few SDTs have been established.

In October 2008, the Senate Standing Committee on Community Affairs prepared a comprehensive report on Special Disability Trusts, called Building trust: Supporting families through Disability Trusts.29 Its recommendations are shown in Appendix F.

The Committee had substantial concerns about the effectiveness of the current arrangements. They found that eligibility requirements are too restrictive so that many people with severe disability, including intellectual disability and disability resulting from mental illnesses, cannot benefit from the trusts. The Committee also said that the concessional limit on trust assets is too low and does not allow families and carers to provide effectively for the future.

The Committee also found that tax arrangements which currently apply to SDTs diminish their value for carers and people with disability. Applying capital gains tax to the sale of a beneficiary's primary residence and the high rate of tax applied to trust earnings are particular disincentives to investing in the trusts. A major shortcoming is the tight restrictions on uses of SDTs. People see little point in setting aside funds if they cannot use them to provide the accommodation, care and support that their loved one needs to live as independently as possible.

The Commonwealth Government’s response in the 2009-10 Budget to the Senate Committee report on SDTs contains some initiatives that address barriers preventing families from making financial contributions to the care and accommodation needs of a family member with severe disability. These initiatives include the following:

The DIG notes that there are other shortcomings of SDTs. Firstly they are a way of transferring assets rather than a way of promoting savings. Secondly, because SDTs are individual trusts they are expensive to establish and maintain as they need auditing, and they are likely to pay retail rather than low-cost wholesale fund management fees.

The DIG therefore examined whether SDTs could be extended to promote savings as well as asset transfers, and become integrated into the superannuation system to benefit from its economies of scale. However, because of the very specialised technology and operating rules that underpin the superannuation industry this is not practical.

The DIG also received submissions and heard during its consultations that families are willing to stretch themselves financially (as well as physically and emotionally) to support a family member with disability, provided it increases the prospect of improved and increased services. Changing SDT arrangements could:

The DIG believes that further reform in relation to accessibility to SDTs should be considered. DIG recommends that the potential for SDTs to contribute to additional private investment in services, including further consideration of the Senate Committee’s recommendations, should be considered as part of the feasibility study of a NDIS.

International savings schemes

A recent study to examine special savings schemes operating in other countries designed specifically to assist people with disability and their families found that only a small number of models exist and there is limited international experience on which to draw.30 Indeed, Australia’s development of SDTs was one of the few innovative models developed to suit the needs of people with disability and their families.

The research highlighted the types of incentives available or proposed by overseas governments to encourage private financial provision, including co-contributions or matched savings, tax deductibility for contributions, and tax exemption for income earned from savings.

While in Australia SDTs exist to assist families to privately fund the longer-term care and accommodation needs of a family member with disability, a savings plan option could provide an incentive to families who are less able to contribute to a mechanism such as a SDT. A new savings plan could also provide a way to save funds to purchase accommodation or support.

Four examples of overseas savings plans are documented which are highly adaptable to Australia.

International savings plan models

Savings Gateway (United Kingdom—starting up in 2010)

  • Savings account for low income groups such as those on government benefits including Incapacity Benefit.
  • Aims to help people save and improve financial literacy.
  • Capped co-contributions by government after maturity at two years.
  • Co-contribution amount and match rates yet to be determined.

The Child Trust Fund (United Kingdom—introduced in April 2005)

  • Long-term savings and investment account to provide incentive for parents to save for their children and to encourage children to save.
  • Initial endowment of ₤250, double that for low income; additional ₤500 at age 7; cannot be accessed until maturity when child turns 18.
  • Parents, family and friends can make tax deductible contributions; earnings exempt from income tax.
  • Operated by private sector financial institutions.

Financial Security Accounts for Individuals with a Disability (United States—a proposal)

  • Special savings account with tax deductions for parents/carers of children with disability for contributions of up to $US 2,000 per year, subject to income limits, for future expenses associated with a child’s disability.
  • Income tax-exempt and disregarded for pension entitlements.
  • Capped at $US 500,000 over a person’s lifetime.

Registered Disability Savings Plan (Canada—implemented in 2008)

  • Contributions (not tax deductible) with no annual limit, but a lifetime limit of $CAN 200,000 to help parents and others to save for the long-term financial security of a beneficiary who has a prolonged and severe physical or mental impairment.
  • Earnings generated from accounts are tax exempt.
  • Matched government contributions up to $CAN 3,500 per annum.

Features of a new Australian savings model

The features of an Australian savings plan model could include some of the following elements:

The DIG recommends that any savings plan or further changes to SDTs should be considered together with the feasibility of a NDIS. This would ensure that arrangements would be as consistent and flexible as possible, and that any concessional treatment is well-targeted. Savings plans may not be cost-effective if set up in isolation or where they involve high compliance costs.

Incentives for additional private savings could make an important contribution to meeting the future costs of people with disability, in the same way as extra voluntary superannuation contributions are today adding to future retirement incomes.

Privately-funded services

In the health, education and aged care sectors, government-subsidised and private services operate side-by-side with government-only funded services.

In the disability sector there is currently no government-subsidised private system. For example, the DIG consultations highlighted that if a family wants to contribute to the costs of providing support and shared accommodation to a family member by buying or developing a purpose-built dwelling, and then seeks funding for care and support, they can be seen as ‘queue jumpers’.

A number of people at the DIG consultations said that they were not looking for handouts from the government. What they wanted is a reduction in the bureaucratic barriers that prevent them from fully looking after their children.

However, private capital contributions are not very common. More generally, potential for families to maximise private contributions is hindered because a shared, two-tier model (together with supported savings mechanisms) is simply not available.

Private accommodation models

The DIG heard from a number of non-profit organisations about their innovative models to provide home ownership and/or supported accommodation for people with disability. This includes the Hope Australia Urban Village Model and Foresters Community Finance.
(For more information, see Appendix I)

A joint submission was received from Foresters Community Finance and Parent to Parent Association QLD. The submission details a community economic development model to mobilise social investment in a trust structure to secure long-term affordable housing and support for people with disability. Foresters says that taxation and financial legislation, and regulation of community economic development companies and community development finance institutions, stunt the growth of such entities and thus inhibit private investment in the community sector. They argue for government to provide legislative and statutory support for these entities.

Hope Australia has developed a model in which a unit trust is established to enable the parent/carer of a person with disability to secure guaranteed accommodation for their adult child or person they are caring for who has an intellectual disability. Hope Australia is not looking for capital funding from government or additional benefits. They want to have existing government benefits, currently received by the parent/carer—namely Carer Payment, Carer Allowance and associated respite program funding—redirected to Hope Australia to pay for care and support through Hope Australia’s proposed model.

Taxation incentives

People with disability often have a higher cost of living than other Australians because they need additional goods and services as a result of their disability. Tax paid on these goods and services imposes additional cost pressures. While all taxpayers are supposed to receive equal tax treatment, people with disability, and their families and carers tend to carry a higher tax burden because of their special needs and additional costs.

Under the A New Tax System (Goods and Services) Act 1999, a limited number of exemptions from the Goods and Services Tax (GST) currently apply to disability aids, equipment and home modifications and furniture. They are specified in the regulations and have to be specifically designed for people with illness or disability. There is no exemption for a large range of other items directly related to disability, such as non-slip floor coverings, extra cleaning services, storage facilities for wheelchairs, or requirements for proximity to specialist facilities such as spinal units.

PwC was commissioned to review current indirect taxes and identify any opportunities and means for reducing taxes on people with disability, their families and their carers. PwC prepared a table setting out current tax treatment and some potential measures to improve the application of the indirect taxes to people with disability. PwC also looked at GST, income tax, stamp duty and customs. (For more information, see Appendix C)

The DIG considers that PwC suggestions to limit the disproportional financial burden of the taxes on people with disability have merit. The suggestions include:

To reduce the disproportional tax burden on people with disability and their families and carers, the current Review into Australia’s Future Tax System should consider these and other ideas in the PwC report.

Costs of working

People with disability, their families and carers also face additional costs when they take up employment. Currently, there is little recognition in the taxation system of these costs, which can include additional respite and support services, aids and equipment.

The DIG recommends that the Commonwealth Government consider the option of introducing a Disability Support Tax Rebate to help remove barriers to employment and active participation by people with disability, their families and carers. The Review into Australia’s Future Tax System should consider the merits of a rebate scheme.

The scheme would be similar to the Child Care Rebate, which is a non-means tested rebate for child care costs covering 50 per cent of out-of-pocket approved child care expenses up to the value of $7,778 (indexed in line with the Consumer Price Index) per child per family per annum.

Similarly a Disability Support Tax Rebate could be applied to work-related expenses of disability aids, equipment, care or disability support necessary for working, studying and/or training.

A Disability Support Tax Rebate would interact with other current and proposed tax concessions and disability services and programs. In considering the interactions, it is important that the rebate is equitably and fairly available, and that people who get the rebate cannot claim for costs already reimbursed through other means, for example, aids and equipment schemes.

  1. Senate Standing Committee on Community Affairs 2008, Building trust: Supporting families through Disability Trusts, October, at http://www.aph.gov.au/Senate/committee/clac_ctte/disability_trusts/report/index.htm
  2. The Allen Consulting Group 2008, International Review of Future Planning Options.

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