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Apportioning a Liability of a Controlled Private Company or Trust

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VEA ?

Effect of charge or encumbrance on the value of assets

Section 52ZZT VEA

VEA ? (go back)

Apportioning a loan or encumbrance

If there is a recognised liability secured against more than one asset of an entity, the value of the liability is shared between the assets in proportion to the respective values of the assets. The liability reduces the value of the assessable asset(s) proportionally, according to the value of the asset(s). Generally a liability will be secured against an asset such as real estate.    

Example of apportioning a loan or encumbrance

The total assets of an entity are $500,000. The sole attributable stakeholder's principal home, worth $100,000, is part of the entity assets. The entity has a recognised liability of $200,000 secured against all its assets. The net asset attribution amount for the attributable stakeholder is calculated as follows:

Total entity assets

$500,000

Less value of principal home

$400,000 ($500,000-$100,000)

Assessable assets as a % of total entity assets

80% ($400,000?$500,000)

Total liability

$200,000

Amount of assessable liability

$160,000 ($200,000x80%)

Attribution %

100%

Net attributable asset amount

$240,000

($500,000-($100,000+$160,000))

Apportionment and multiple attributable stakeholders

    

VEA ?

Attributable stakeholder, asset and income attribution percentage

Section 52ZZJ VEA

VEA ? (go back)

If there are multiple attributable stakeholders, any genuine liabilities secured against the assets of the entity must be apportioned before determining each stakeholder's net asset attribution amount. If the principal home of a stakeholder is part of the entity assets then the home is an exempt asset for that stakeholder only.    

Example 1 of apportionment and multiple attributable stakeholders

Example 1: Darren, Fiona (a partnered couple) and Terry are attributed with one third each of the assets of a private family trust. The trust has assets totalling $600,000, and includes the principal home of Darren and Fiona which is valued at $100,000. The trust has a liability of $300,000 secured against the assets. The net asset attribution amount for each stakeholder is calculated as follows:

Darren & Fiona

Terry

Total entity assets

$600,000

$600,000

Less value of principal home

$500,000

($600,000-$100,000)

Nil

Assessable assets as a % of total entity assets

83.33% ($500,000?$600,000)

100%

Total liability

$300,000

$300,000

Amount of assessable liability

$250,000 ($300,000x83.33%)

$300,000

($300,000 x 100%)

Attribution %

33.33% each

33.33%

Net attributable asset amount

$83,333 each

(($600,000-(100,000+$250,000)) x33.33%)

$100,000

(($600,000-$300,000) x33.33%)

Example 2 of apportionment and multiple attributable stakeholders

Example 2: Three brothers Tony, Dominic and Ben are attributed with one third each of an entity with assets totalling $1,000,000. The principal home of each brother is part of the assets of the entity. Tony's home is valued at $120,000, Dominic's home is valued at $90,000, and Ben's home is valued at $60,000. The entity also has a liability of $300,000 secured against all its assets. The net asset attribution amount for each stakeholder is calculated as follows:

Tony

Dominic

Ben

Total entity assets

$1,000,000

$1,000,000

$1,000,000

Less value of principal home

$880,000

($1,000,000-$120,000)

$910,000

($1,000,000-$90,000)

$940,000

($1,000,000-$60,000)

Assessable assets as a % of total entity assets

88%

($880,000?$1,000,000)

91%

($910,000?$1,000,000)

94%

($940,000?$1,000,000)

Total liability

$300,000

$300,000

$300,000

Amount of assessable liability

$264,000

($300,000x88%)

$273,000

($300,000x91%)

$282,000

($300,000x94%)

Attribution %

33.33%

33.33%

33.33%

Net attributable asset amount

$205,313

(($1,000,000-($120,000+$264,000))

x33.33%)

$212,312

(($1,000,000-($90,000+$273,000))

x33.33%)

$219,311

(($1,000,000-($60,000+$282,000))

x33.33%)


An entity means any of the following:

an individual,

a company,

a trust,

a business partnership,

a corporation sole,

a body politic.

The principal home has the meaning given by subsection 5LA(1) of the VEA and subsection 5LA(2) of the VEA. The principal home of a person is generally the place in which they reside. In certain circumstances, however, the principal home of a person can be the place in which they formerly resided. The following property is regarded as part of the principal home.

  • the residence itself (e.g. house, flat, caravan),
  • permanent fixtures (e.g. stoves, built-in heaters, dish-washers, light fittings and affixed carpets),
  • [glossary:curtilage:DEF/Curtilage] (i.e. two hectares or less of private land around the home where the private land use test has been satisfied, or all land held on the same title as the person's principal home where the extended land use test has been satisfied), or
  •       any garage, shed, tennis court or swimming pool used primarily for private purposes provided it is on the same title as the principal home.

 

 

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.

 

 

An exempt asset is one that is disregarded when calculating the value of a person's assets under the assets test.  Examples of exempt assets include:

For a full legislative definition see section 52 of the VEA.