You are here
Resignation from a Controlled Private Trust or Company before 1 January 2002
Resignation from a discretionary trust before 1 January 2002
As a discretionary trust[glossary:'s:] assets and income do not become assessable until 1 January 2002, the deprivation provisions do not apply if a person resigns from the trust before that date. If a person is already serving a five-year deprivation period arising from having originally gifted assets to the trust, any deprivation amount will continue to be assessed for the balance of the five-year period. However, if the person making the gift is deemed to still be the controller, the amount of the disposition is to be reduced by the person's attribution percentage from 1 January 2002.
Example of an attributable stakeholder resigning control with life interest in family home
Henry and Mary are the appointors and trustees of a discretionary family trust that was set up 7 years ago. The assets of the trust total $700,000, including the family home that is valued at $170,000. Henry and Mary are in receipt of a service pension. They realise that come 1 January 2002 they will be attributed with the assets and income of the trust and will no longer be entitled to the pension. On 1 November 2001 they resign from the trust, keeping a life interest in the family home. Their entitlement to pension is not affected.
Resignation from a fixed unit trust or private company before 1 January 2002
If a person resigns from a fixed unit trust or private company before 1 January 2002 and relinquishes their units or shares for less than the value assessed (using the net asset backing method), the deprivation provisions will apply.
Example of a resignation from a private company – deprivation applies
Rodney and Marie (a married couple) are the majority shareholders in a private company. They hold 95 voting shares between them. Their shares are valued at $50,000 (using the net asset backing method). On 20 September 2001, Rodney and Marie resign from the company and sell the shares to their children for $15,000. Rod and Marie are subject to deprivation for the amount of $25,000 ($50,000-$15,000-$10,000(gifting free area)).
A discretionary trust is a private trust set up by an individual or individuals either to:
- hold property or investments, or
- run a business.
In virtually all cases the trust deed gives absolute discretion to the trustee to distribute both income and capital among the beneficiaries as he or she sees fit.
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 asset means any property, including property outside Australia.
A life interest arises when a pensioner:
- acquires the right to use assets or the income produced by those assets, or
- transfers a non-exempt asset to another person, but retains an interest in the asset, or
- is created by the will of a deceased individual.
A life interest remains current until the pensioner:
- sells the asset, or
- formally surrenders the asset.
Units in relation to a trust, include a beneficial interest, however described, in the property or income of the trust.
The net asset backing method provides the least complex and consistent basis for assessing the value of private companies. The method values the shares in a private company by calculating the:
- adjusted net asset position of the company, by deducting company liabilities from the current market value of the assets, and
- assessable value of shares by determining the amount of surplus capital that would accrue to each share if wound-up.
The calculation is based upon information in the company balance sheet and depreciation schedule taking into consideration the current market value rather than the historical value as may appear in the balance sheet.