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10.3.1 Overview of Business Structures and Trusts
Last amended: 9 October 2006
- sole traders
- private companies
- private trusts
Current private trusts and companies rules
The contents of section 6 to section 18 relate to specific rules that apply to the assessment of income and assets of private trusts and private companies form 1 January 2002. Business structures such as partnerships and sole traders are subject to their own rules and are dealt with separately.
26 June 1992 changes to assessment for primary production
On 26 June 1992, a change was introduced to allow primary producers to offset the value of all their primary production liabilities against primary production assets. All assets in primary production and all liabilities relating to primary production are now aggregated, as if they were one asset and one liability. The reason for the change is that many primary producers have individual farm assets with a current market value less than the level of the debt secured against them, because the debt has not reduced as quickly as the asset has depreciated. Before 26 June 1992, the asset value for those assets was maintained as nil, and the excess debt could not be offset against positive values assessed for other farm assets.
Summary of private trusts and companies
For the assets and income of a private trust or private company to be attributed to an individual the trust or company must be:
- a designated private trust or designated private company, and
- a controlled private trust or controlled private company in relation to the individual, and
- the individual must be an attributable stakeholder of the trust or company.
Pre 1 January 2002 trust and company rules
Whilst the new rules take effect from 1 January 2002, they do not replace the trust and company rules that applied prior to that date. The pre 1 January 2002 rules should be applied when calculating any assessable income or assets of a private trust or private company prior to 1 January 2002. This includes deprivation of an interest in a private trust or private company prior to 1 January 2002.
Private trusts & private companies post 01/01/2002
Section 6 to section 17 deal with the treatment of private trusts and private companies from 1 January 2002 and contain information on:
- how to determine a designated private trust or private company and how to determine a controlled private trust or private company,
- the use of control and source tests and the associates rule when attributing the assets and income of a private trust or private company to an individual,
- the attribution to individuals of the assets and income of private trusts and private companies,
- associated issues concerning deprivation of income and assets, the treatment of income from different sources and the treatment of various types of assets, and
- the treatment of primary production assets that are held in private trusts and private companies and information on concessional primary production trusts.
Special Disability Trusts
Sections 18 and 19 relate to the rules applicable to special disability trusts (SDT). On 13 October 2005 the Prime Minister announced a package to assist families wishing to make private financial provisions for the current or future accommodation and care of a son or daughter with severe disability by contributing assets into a trust account. The package includes means test concessions for service pension and income support recipients who have reached pension age. These concessions apply where a trust has been established solely for the care and accommodation needs of a person with a severe disability.
According to section 5H of the VEA income is:
- an amount earned, derived or received by a person for the person's own use or benefit;
- a periodical payment by way of gift or allowance; or
- a periodical benefit by way of gift or allowance.
An asset means any property, including property outside Australia.
The market value of an asset is the point at which a willing purchaser and a willing, but not anxious vendor, would reach agreement.
The market value of an asset is only decreased by the value of an encumbrance secured against it. The market value of an asset is not reduced by any costs which may be incurred if the asset was to be sold.
Company has the same meaning as in the Income Tax Assessment Act 1997.
According to section 52ZZB of the VEA, a trust is a designated private trust unless:
the following conditions are satisfied, that is the trust:
units are held by 50 or more persons, and
the trust was not created, continued in existence or operated under a scheme that was entered into or carried out for the sole or dominant purpose of enabling any individual/s to avoid Division 11A (means test of private companies and private trusts), section 52ZZB of the VEA or the equivalent section of the Social Security Act, or
- the trust is a complying superannuation fund: or
- the trust is an excluded trust.
According to Section 52ZZA of the VEA, a company is a designated private company at a particular time if the company:
- satisfies at least 2 of the following conditions in relation to the financial year that ended immediately before that time:
gross operating revenue is less than $25 million;
gross assets at the end of the financial year are less than $12.5 million;
the company has fewer than 50 employees at the end of the financial year, or
- the company came into existence after the end of the financial year that ended immediately preceding that time, or
- the company is a declared private company (DPC) ,
and the company is not an excluded company.
According to section 52ZZJ of the VEA, a person is an attributable stakeholder if a company or trust is a controlled private company or trust in relation to the individual unless the Commission determines otherwise.
Control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights.
An associate of an individual for the purposes of private trusts and private companies has the meaning given by section 52ZQ of the VEA.
To be eligible to be the principal beneficiary of a special disability trust, a person must have a severe disability. A person with a severe disability is:
- a person who has reached 16 years of age:
- whose level of impairment would qualify the person for disability support pension from Centrelink or who is already receiving invalidity service pension or invalidity income support supplement, and
- who has a disability that would, if the person had a sole carer, qualify the carer for carer payment or carer allowance, or
- who is living in an institution, hostel or group home in which care is provided for people with disabilities, and for which funding is provided (wholly or partly) under an agreement between the Commonwealth and State/Territory governments, and
- who has a disability as a result of which he or she is not working and who has no likelihood of working for a wage that is at or above the relevant minimum wage, or
- a child under 16 years of age who is a profoundly disabled child as defined in subsection 197(1) in the Social Security Act 1991.
A service pension is an income support payment broadly equivalent to the social security age and disability support pensions. It may be paid once a veteran or partner has reached the nominated age or is incapacitated for work.
Currently, the pension age for a veteran is 60 years of age (VEA 5QA).
The pension age for a non-veteran is determined by the table below:
Date of birth (both dates inclusive)
Age Pension age
1 July 1952 to 31 December 1953
65 years and 6 months
1 January 1954 to 30 June 1955
1 July 1955 to 31 December 1956
66 years and 6 months
On or after 1 January 1957