What Is a Special Disability Trust?
A Special Disability Trust (SDT) is a statutory trust structure established under Part 3.18A of the Social Security Act 1991 (Cth). Its primary purpose is to enable families to make private financial provision for the future care and accommodation needs of a family member with a severe disability, without causing that person to lose their government income support entitlements.
Unlike an ordinary discretionary trust, an SDT operates under tightly prescribed rules: it must adopt the Services Australia Model Trust Deed, it can have only one principal beneficiary, expenditure is restricted to care and accommodation costs (with a limited annual discretionary allowance), and it requires annual financial statements and independent audits. In return for that compliance burden, the Social Security Act confers significant Centrelink means-test concessions that are not available to any other trust structure.
Crucially, an SDT must be assessed and approved by Services Australia before it is established. Families cannot simply create an SDT by executing a deed — the prospective principal beneficiary must first be assessed as meeting the severe disability criteria, and the trust itself must be approved.
Key point: An SDT is not a replacement for other estate planning structures — it is a specialist tool for one specific purpose. Most high-net-worth families use an SDT in combination with a testamentary trust Will and, where applicable, a binding death benefit nomination for their superannuation.
Eligibility: Who Can Be a Principal Beneficiary?
The eligibility criteria for a principal beneficiary are found in section 1209M of the Social Security Act 1991. The assessment differs depending on the person's age.
Persons aged 16 or over
To qualify, a person aged 16 or over must satisfy all three of the following conditions:
- DSP-qualifying impairment: The person has an impairment level that would medically qualify them for the Disability Support Pension (DSP), or for a DVA Invalidity Service Pension or DVA Invalidity Income Support Supplement — whether or not they are actually receiving that payment.
- Carer test: The person has a disability such that, if they had a sole carer, that carer would qualify for Carer Payment or Carer Allowance.
- Work capacity: The person is unable to work more than 7 hours per week in the open labour market at or above the relevant minimum wage, due to their disability.
Children under 16
For children under 16, the assessment is made under section 197 of the Social Security Act 1991. The child must:
- Have a severe disability or severe medical condition.
- Have an intense care rating under the Carer Allowance assessment — meaning their care needs are in the highest category.
- Have the disability or condition certified by a treating health professional approved by Services Australia.
Services Australia makes the final determination. An estate planning lawyer can assist in preparing the application and ensuring all supporting documentation is in order.
Centrelink Means-Test Concessions
The Centrelink benefits available to a compliant SDT are the primary reason families establish them. These concessions are unavailable under any other trust structure.
Assets test exemption
Assets held inside a compliant SDT up to the concessional asset value limit are fully exempt from the principal beneficiary's Centrelink assets test. For the 2025–26 financial year, this limit is $832,750, indexed to CPI on 1 July each year.
Critically, the principal beneficiary's principal place of residence (PPR), if held within the SDT, is excluded from the $832,750 cap. It does not count towards the limit at all — meaning a family home plus up to $832,750 in other assets can sit inside the SDT without affecting the beneficiary's Centrelink entitlements. Assets above the $832,750 threshold (excluding the PPR) are assessed under standard private trust rules.
Income test exemption
All income generated by an SDT is entirely exempt from the principal beneficiary's Centrelink income test, regardless of the level of assets held. This is a significant advantage: a trust holding investment properties or a share portfolio can generate substantial income without reducing the beneficiary's pension or allowance.
Deeming does not apply to SDT assets. Under ordinary Centrelink rules, financial assets are deemed to earn a notional rate of return for income test purposes — but SDT assets are specifically excluded from deeming.
Annual discretionary allowance
The trustee may spend up to $14,750 per year (2025–26, indexed) from the SDT on items that are not directly related to the beneficiary's disability care needs. This discretionary allowance covers ordinary living expenses such as food, clothing, utilities, vehicle registration, recreation, and household insurance.
2025–26 Key Figures: Assets test exemption — $832,750 (plus the beneficiary's PPR, which is uncapped). Annual discretionary allowance — $14,750. Both figures are indexed to CPI each 1 July.
The $500,000 Gifting Concession
One of the most powerful features of an SDT is the $500,000 gifting concession available to eligible immediate family members.
Under ordinary Centrelink rules, an Age Pensioner (or a person within 5 years of Age Pension age) can only gift up to $10,000 per financial year, or a combined total of $30,000 over 5 years, before Centrelink treats the gifted amount as a deprived asset and assesses it under the assets test for the next 5 years. Gifting above these limits triggers deprivation penalties.
The gifting concession for SDTs provides a complete exception to these rules. Eligible immediate family members can gift a combined total of up to $500,000 into an SDT without any Centrelink deprivation consequences. The $500,000 limit is per SDT (not per donor) and is currently unindexed.
Who is an "immediate family member" for this purpose?
- Parents (including adoptive parents)
- Step-parents
- Legal guardians
- Grandparents
- Siblings
To access the concession, the family member making the gift must be at Age Pension age and receiving a qualifying pension or allowance, or be within 5 years of Age Pension age. The gift must be unconditional — any strings attached may invalidate the concession.
Planning note: Anyone — including organisations, companies, and non-family members — can contribute to an SDT after it is established. However, only eligible immediate family members can claim the Centrelink gifting concession. Once the $500,000 combined limit is reached, further contributions do not qualify for the concession and will be assessed under standard gifting rules.
Permitted Expenditure
SDT funds are restricted to expenditure on the principal beneficiary's reasonable care and accommodation needs arising from their disability. This is a strict requirement — improper expenditure can result in the trust losing its concessional status.
Permitted care and accommodation expenditure
- Specialist accommodation — purpose-built or adapted housing, including purchase of a residential property (not from immediate family)
- Home modifications — ramps, widened doorways, bathroom modifications, ceiling hoists, and similar disability-related adaptations
- Mobility aids and prostheses — wheelchairs, walkers, communication devices, hearing aids, prosthetic limbs
- Modified vehicles — adaptations necessary for the beneficiary to travel due to their disability
- Medical and dental expenses — all costs relating to the beneficiary's health needs arising from their disability
- Private health insurance — premiums for hospital and extras cover
- Disability-specific therapy — physiotherapy, occupational therapy, speech pathology, psychology, and similar allied health services
- Specialised food — where required as part of a medically necessary diet
- Transport — costs incurred for transport arising from the disability
- Daily care fees — fees paid to care facilities or support workers (but not to immediate family members)
Annual discretionary allowance
In addition to the permitted care and accommodation expenditure, the trustee may spend up to $14,750 per year (2025–26) on items that are not directly disability-related. This includes ordinary living expenses such as groceries, clothing, utilities, vehicle registration, recreation, and household insurance. This allowance cannot be accumulated or carried forward to the next financial year.
Important restriction: Immediate family members cannot be paid from SDT funds for services they provide to the beneficiary, even if those services would otherwise be a permitted expenditure. Payments to a parent who provides daily care, for example, are not permitted from SDT funds.
Victorian Stamp Duty Exemptions for SDTs
From 1 July 2023, the State Revenue Office Victoria (SRO) introduced specific stamp duty exemptions for transfers of real property into a Special Disability Trust. This is a significant development for Victorian families considering whether to place real property — including the beneficiary's home — into an SDT.
New from 1 July 2023: Victorian stamp duty exemptions apply to transfers of real property into an SDT from immediate family members, subject to value thresholds and conditions.
Principal place of residence (PPR) exemption
Where the property to be transferred is the principal place of residence of the beneficiary, the transfer is fully exempt from duty if the dutiable value of the property does not exceed $1.5 million. If the dutiable value exceeds $1.5 million, duty is assessed only on the excess over that threshold — not on the full value.
Non-PPR property exemption
For property that is not the beneficiary's principal place of residence, a separate exemption applies where the dutiable value does not exceed $500,000. If the dutiable value exceeds $500,000, duty is assessed only on the excess above that threshold.
| Property Type | Exemption Threshold | Treatment of Excess |
|---|---|---|
| Principal place of residence (PPR) | Up to $1,500,000 — fully exempt | Duty assessed on amount exceeding $1.5M only |
| Non-PPR property | Up to $500,000 — fully exempt | Duty assessed on amount exceeding $500K only |
Conditions for the exemption
The following conditions must be satisfied for either exemption to apply:
- Immediate family transfer: The transfer must be from an immediate family member to the SDT — transfers from third parties do not qualify.
- Gift — no consideration: The transfer must be a gift. Any consideration paid by the SDT (or the beneficiary) will disqualify the exemption.
- Established dwelling: The property must be an established residential dwelling. Vacant land does not qualify, even if the family intends to build a home on it.
- Residence requirement (PPR): For the PPR exemption, the beneficiary must satisfy the relevant residence requirement — the property must be or become the beneficiary's principal place of residence.
Related exemptions: direct transfers and land tax
A separate stamp duty exemption applies for direct transfers of property to a qualifying person with a disability who is not using an SDT structure. Additionally, a land tax exemption applies for a principal place of residence that is occupied by a person with a disability. Families considering property transfers should obtain specific advice on both stamp duty and land tax implications.
All of these exemptions are administered by the State Revenue Office Victoria (SRO). For the most current information, see the SRO Victoria website. WealthShield Legal can assist in structuring the transfer and preparing the necessary documentation.
CGT Main Residence Exemption
Beyond stamp duty, SDTs can access a significant capital gains tax (CGT) concession under the income tax legislation.
Section 118-85 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a CGT main residence exemption for the disposal of a dwelling that was the main residence of a person with a severe disability (as defined in the Social Security Act). Where an SDT disposes of a property that was the principal beneficiary's main residence, the capital gain on that disposal may be fully exempt — and this exemption is uncapped as to value.
This is a materially different outcome from the ordinary CGT main residence exemption, which applies to individuals and has specific conditions regarding ownership period and use of the property. The SDT exemption under section 118-85 is designed specifically for the disability context.
ATO Draft Taxation Determination TD 2026/D1
The ATO has released a draft taxation determination (ATO Draft TD 2026/D1) that addresses aspects of the CGT treatment of certain trust structures, including implications for testamentary trusts. Once finalised, this determination may have a bearing on how CGT concessions interact with testamentary trust and SDT structures. For our detailed analysis, see our forthcoming article on ATO Draft TD 2026/D1 and its impact on testamentary trust CGT (to be published).
Tax advice required: CGT outcomes depend on the specific facts — the ownership period, the use of the property, and the circumstances of disposal. The general information above is not tax advice. Your accountant should be engaged before any property is sold or transferred out of an SDT.
SDT vs Protective Trust vs Testamentary Trust
Families with a disabled member often encounter three overlapping concepts: the Special Disability Trust, the protective trust, and the testamentary trust. Understanding the differences — and when to use each — is central to good estate planning.
- ✓ Statutory structure under Social Security Act 1991
- ✓ $832,750 Centrelink assets test exemption
- ✓ $500,000 gifting concession for immediate family
- ✓ Income fully exempt from Centrelink income test
- ✓ Victorian stamp duty exemptions
- ✗ One principal beneficiary only
- ✗ Strict expenditure restrictions
- ✗ Annual audit and reporting obligations
- ✗ Must use Services Australia Model Deed
- ✓ Broad trustee discretion over distributions
- ✓ Can accommodate multiple beneficiaries
- ✓ Can be established during lifetime or in a Will
- ✓ Flexible — can be tailored to family circumstances
- ✗ No Centrelink assets test exemption
- ✗ No $500,000 gifting concession
- ✗ Trust income assessed under Centrelink income test
- ✗ No Victorian stamp duty SDT exemptions
- ✓ Created by Will, activated on death
- ✓ Income splitting to minor beneficiaries at adult rates
- ✓ Broad asset protection for inherited wealth
- ✓ Discretionary — multiple beneficiaries possible
- ✓ Can be combined with an SDT
- ✗ No Centrelink assets test exemption
- ✗ No $500,000 gifting concession
- ✗ Must be activated after the Will-maker's death
The optimal structure for most families with a severely disabled member combines an SDT (for the Centrelink concessions and stamp duty benefits) with a testamentary trust Will (for broader asset protection, income-splitting with other beneficiaries, and flexibility). These structures complement each other rather than compete.
How to Integrate an SDT with Your Testamentary Trust Will
Integrating an SDT with a testamentary trust Will requires careful planning and sequencing. There are two principal approaches.
Approach 1: Pre-established SDT with testamentary bequest
The SDT is established during the parents' or guardian's lifetime — before any death occurs. This requires Services Australia approval and the adoption of the Model Trust Deed. The Will is then drafted to direct the disabled child's share of the estate into the pre-existing SDT upon the Will-maker's death.
This is the preferred approach where the disabled family member is already receiving government benefits and the SDT is needed immediately (for example, to receive gifts from ageing parents under the $500,000 gifting concession). The Will simply confirms the direction of the estate share into the SDT — no further approval is needed at the time of death.
Approach 2: Testamentary direction with post-death SDT establishment
Alternatively, the Will can establish a testamentary protective trust for the disabled child, with the executor given a power (or direction) to establish an SDT post-death if the child is eligible at that time. This provides greater flexibility — the executor can assess eligibility and the Centrelink landscape at the time of death and make the appropriate decision.
The limitation of this approach is that an SDT established after the Will-maker's death cannot benefit from the $500,000 gifting concession — that concession is only available to living immediate family members. However, the trust assets received from the estate may still qualify for the Centrelink assets test exemption if the SDT is properly established and approved.
WealthShield Legal's approach
Our Comprehensive and Bespoke estate planning packages include SDT integration as a standard component for families with a disabled member. Our work typically includes:
- Advising on the optimal timing and structure for SDT establishment
- Assisting with the Services Australia application and supporting documentation
- Drafting the testamentary trust Will with specific SDT direction provisions
- Co-ordinating with the family's accountant on the tax implications
- Reviewing the interaction between the SDT, any superannuation death benefit nominations, and other estate planning structures
Discuss Your Family's Needs
Every family's circumstances are different. Our Principal Lawyer will assess whether an SDT is appropriate for your situation and how it integrates with your broader estate plan — with no obligation and an honest recommendation.
Frequently Asked Questions
A Special Disability Trust (SDT) is a legally recognised trust structure under Part 3.18A of the Social Security Act 1991 (Cth), designed to help families make private financial provision for the future care and accommodation needs of a person with a severe disability. It provides significant Centrelink means-test concessions, including an assets test exemption of up to $832,750 (2025–26) and a gifting concession of up to $500,000 for eligible immediate family members. SDTs are appropriate when the intended beneficiary meets the definition of "severe disability" under section 1209M of the Social Security Act 1991.
Assets held in a compliant SDT up to $832,750 (2025–26, indexed to CPI) are fully exempt from the principal beneficiary's Centrelink assets test. The beneficiary's principal place of residence held within the SDT is excluded from this cap entirely. All income generated by the SDT is exempt from the Centrelink income test, regardless of the amount — and deeming rules do not apply to SDT assets. An annual discretionary allowance of $14,750 (2025–26, indexed) may be spent on non-disability items. Eligible immediate family members can also gift up to a combined $500,000 into the SDT without Centrelink deprivation penalties.
From 1 July 2023, the State Revenue Office Victoria (SRO) introduced stamp duty exemptions for transfers of real property into an SDT from an immediate family member. Where the property is the beneficiary's principal place of residence (PPR), the transfer is fully exempt from duty if the dutiable value does not exceed $1.5 million. For non-PPR property, the exemption applies to the first $500,000 of dutiable value. If the property value exceeds either threshold, duty is assessed only on the excess — not the full amount.
To qualify, the transfer must be: (i) a gift — no consideration can be paid; (ii) of an established dwelling — vacant land is not eligible; and (iii) from an immediate family member. For the PPR exemption, the beneficiary must also satisfy a residence requirement. A separate exemption applies for direct transfers to a qualifying person with a disability (not via an SDT), and a land tax exemption applies for a PPR occupied by a person with a disability. Obtain specific legal and tax advice before proceeding with any property transfer into an SDT.
SDT funds must primarily be used for the principal beneficiary's reasonable care and accommodation needs arising from their disability. Permitted expenditure includes: specialist accommodation or home purchase (not from immediate family), home modifications, mobility aids and prostheses, modified vehicles, specialised food, all medical and dental expenses, private health insurance, disability-specific therapy, transport arising from disability, and daily care fees.
An annual discretionary spending allowance of $14,750 (2025–26, indexed) permits spending on items not directly related to disability care, such as food, vehicle registration, utilities, recreation, clothing, and household insurance. Immediate family members cannot be paid from SDT funds for services provided to the beneficiary.
Eligible immediate family members who are at Age Pension age and receiving a qualifying pension (or who are within 5 years of Age Pension age) can gift a combined total of up to $500,000 into a Special Disability Trust without incurring Centrelink deprivation penalties. The $500,000 limit is per SDT (not per donor) and is currently unindexed. Once the SDT is established, anyone — including organisations and companies — can make contributions, but only eligible immediate family members can claim the gifting concession. Gifts must be unconditional. "Immediate family" means parents, step-parents, legal guardians, grandparents, and siblings.
A protective trust is a broader term for any trust designed to safeguard assets for a vulnerable beneficiary. It can be established during your lifetime or under your Will, and the trustee typically has wide discretion over distributions. A protective trust can accommodate multiple beneficiaries and greater flexibility.
A Special Disability Trust is a statutory structure under the Social Security Act 1991 (Cth) with strict requirements: it must have only one principal beneficiary who meets the severe disability criteria, must follow a prescribed Model Trust Deed, restricts expenditure to care and accommodation purposes (plus the annual discretionary allowance), requires annual financial statements and independent audits, and must be approved by Services Australia. The trade-off for this compliance burden is the Centrelink means-test concessions — the $832,750 assets exemption and the $500,000 gifting concession — which a standard protective trust cannot provide.
A Will-maker can direct that, upon their death, a portion (or all) of their estate is settled into a pre-existing Special Disability Trust rather than being distributed outright to the disabled beneficiary. The SDT must already be established and the beneficiary already approved before the bequest is made. Alternatively, the Will can establish a testamentary protective trust for the disabled child, with broader trustee discretion than an SDT, but without the Centrelink means-test concessions.
For families who want both the Centrelink concessions and a comprehensive estate plan, the SDT is typically established during the parents' lifetime, and the Will is then drafted to direct the disabled child's share of the estate into the SDT upon the parents' death. WealthShield Legal's Comprehensive and Bespoke packages include SDT integration as a standard component.