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Distribution of the Income of a Private Trust or Company to a Non-attributable Stakeholder
Distribution paid to a non-attributable stakeholder before 1 July 2000
Distributions or dividends paid to non-attributable stakeholders before 1 July 2000 are not subject to the deprivation provisions of the Act. For the non-attributable stakeholder the distribution or dividends are to be treated as income for 12 months from the date they became eligible to receive the distribution, ie. the date of resolution to distribute (usually 30 June). This concession was given in recognition of the fact that until Ministerial Announcement on 9 May 2000, most people would not have been aware of the proposed new means test treatment of private trusts and private companies.
Distribution paid to a non-attributable stakeholder on or after 1 July 2000
Distribution or dividends paid to a non-attributable stakeholder on or after 1 July 2000 may be assessed as a gift from the attributable stakeholder(s) (subject to their attribution percentage(s)) and income of the non-attributable stakeholder for 12 months from the date of resolution to distribute. However distributions paid to a non-attributable stakeholder will be disregarded if:
- the person:
- can show they were not in receipt of an income support payment and could not have reasonably known that they would require income support at the time the distribution or dividend was paid,
- can show that the payment is not a regular payment, and
- makes a written declaration of the above, or
- the non-attributable stakeholder has been assessed as a genuine investor and the distribution paid to the genuine investor is commensurate with their investment in the entity.
The deprivation rules in relation to the attributable stakeholder still apply. If future distributions or dividends are made to the pensioner a reconciliation of the pensioner's entitlements may occur with the possibility of an overpayment being raised from the date the dividend or distribution was exempted.
Example of distribution by attributable pensioner to a non-attributable pensioner
John, who is in receipt of an income support payment, is the sole attributable stakeholder of a private family trust. After 1 July 2000, John distributes $6,000 each to his son and daughter (recorded on the trust's income tax return), who are also in receipt of income support payments. From 1 January 2002 John is subject to the deprivation provisions in respect of the $12,000 he has 'gifted' to his children. The distribution received by his son and daughter is treated as their income for 12 months from date of assessment.
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.
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.
An individual will be treated as a genuine investor in a private company where:
- an actual injection of capital or equity has been made,
- the person who made the capital injection is not an attributable stakeholder of the company,
- the person receives shares in the company commensurate with the amount of capital injection,
- the person has a right to capital upon wind-up commensurate with the total capital injection,
- the person has a right to dividends reasonably commensurate with the total capital injection,
- the person is over 18 years of age at the time the capital injection was made, and
- in the opinion of the delegate, the injection of capital was genuine.
A genuine injection of capital in return for equity in a private trust can only occur where the trust is a fixed trust, and the person obtains units in return for the injection of capital. Genuine investors have the historical value of the injected equity capital assessed as their asset.
An entity means any of the following:
a business partnership,
a corporation sole,
a body politic.