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Distribution of the Capital of a Private Trust or Company

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VEA ?

Disposal of assets by a company or trust

Section 52ZZW VEA

Constructive transfers of property or services to an entity

Section 52ZV VEA

VEA ? (go back)

Distribution of the capital of a private trust or private company to an attributable stakeholder

Distributions of the capital of a private trust or private company to an attributable stakeholder will not be assessed as income for pension purposes (provided the distribution amount is equal to the income attribution percentage of the stakeholder). This is because the capital of the structure is already assessed as an asset of the attributable stakeholder. A distribution of that capital to the stakeholder, in accordance with their attribution percentage, is merely a shift of those assets and is not income for pension purposes.     

Example of distribution of capital to an attributable stakeholder

Bill and Ben operate a gardening shop through a private company. They are both in receipt of an income support payment. Bill is attributed with 60% of the assets and income of the structure, Ben is attributed with 40%. Bill and Ben decide to withdraw $100,000 (capital) from the business. Bill receives $60,000 (60%), Ben receives $40,000 (40%). As the distribution of capital has been made in accordance with their attribution percentages it is not assessed as income for pension purposes.

Capital distribution in excess of attribution percentage

    

VEA ?

Certain amounts taken to be received over 12 months

Section 46A VEA

Disposal of assets

Section 52E VEA

Disposal of ordinary income

Section 48 VEA

VEA ? (go back)

The portion of the capital of a structure distributed to an attributable stakeholder in excess of their attribution percentage will be assessed as income for 12 months from the date of receipt/distribution.

Example of capital distributions in excess of attribution percentage

    

VEA ?

Certain amounts taken to be received over 12 months

Section 46A VEA

VEA ? (go back)

Bill and Ben decide to draw further capital of $60,000 from the structure. Bill receives $50,000, Ben receives $10,000. Bill received $14,000 in excess of his attribution percentage ($36,000). The excess amount of $14,000 is assessed as income for 12 months from the date of receipt.

Capital distribution less than attribution percentage

The portion of the capital of a structure distributed to an attributable stakeholder that is less than the stakeholder's attribution percentage, will be a gift of that stakeholder and subject to the deprivation provisions.    

Example of capital distribution less than attribution percentage

In the previous example Ben received $10,000 from the distribution of the capital. As this amount is less than his attribution percentage of 40% ($24,000), Ben is assessed as having gifted $14,000 and the deprivation rules are applied.

Capital distribution to a non-attributable stakeholder

Distributions of the capital of a structure to a non-attributable stakeholder will be assessed as a gift from the attributable stakeholder (subject to their attribution percentage), and income of the non-attributable stakeholder for 12 months from the date of receipt.    

Example of capital distribution to a non-attributable stakeholder

Bill and Ben have made a capital distribution of $20,000 to Bill's daughter, Jill, from the business. Jill is in receipt of income support pension. Bill is deemed to have gifted $12,000 (60%) and Ben is deemed to have gifted $8,000 (40%). Jill has income of $20,000 assessed against her for 12 months from the date of receipt. However, the distribution of the capital of a structure to a non-attributable stakeholder will be disregarded if:

  • the recipient was not in receipt of an income support payment at the time of the distribution, and
  • the recipient could not reasonably have known that they would require income support at the time of the distribution.

The deprivation provisions in relation to the attributable stakeholder still apply.


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.

 

 

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.

 

 

If the individual is an attributable stakeholder of the trust or company, the individual's income attribution percentage in relation to the trust or company is:

  • 100%, or
  • a lower percentage if the Commission determines otherwise.

 

 

When making a decision whether a course of conduct warrants application of the deprivation provisions, reference should be made to section 48 of the VEA in relation to income and section 52E of the VEA in respect of assets.

 

 

Attribution percentage is the percentage of income or assets in the private trust or company that will be taken to be the income and assets of the pensioner for the purpose of the income and assets tests.  This only applies if the pensioner (or spouse) is determined to be a controller of the private trust or company.