You are here

Resignation from a Controlled Private Trust or Company on or after 1 January 2002

Document
General provisions

    

VEA ?

Individual ceases to be an attributable stakeholder of a company or trust

Section 52ZZY VEA

VEA ? (go back)

An attributable stakeholder who resigns control of a private trust or private company on or after 1 January 2002 will be treated in a manner comparable to other people who gift or relinquish assets. That is, the deprivation provisions will apply to them from the date of resignation (subject to the assessed asset attribution percentage of the structure attributed to the stakeholder).

Genuine resignation requirements

A genuine resignation will be accepted as having occurred where both the attributable stakeholder and their spouse fulfil all the following criteria:

  • relinquish all formal roles and control in respect of the entity,
  • if applicable, relinquish their shares and directorships,
  • relinquish all beneficial interest ie they cannot be income or asset beneficiaries of the entity. This could be evidenced by:
  • removing themselves as a beneficiary from the trust deed, usually requiring the deed to be resealed and stamp duty payable,
  • altering the trust deed stipulating that they irrevocably exclude themselves and their partner as the beneficiaries of any income or asset distribution or the receipt of any other benefit, or
  • creating a separate deed to irrevocably renounce the beneficial interest of the person and their partner in the trust, and
  • making a written declaration that they will not exert any control over, or benefit in any way from, the entity.

One exception to the above rules is that the resigning attributable stakeholder(s) can also retain a life interest in their principal residence if the residence is part of the assets of the trust or company. If the new attributable stakeholder/s is an associate, the associate rule will not apply. The 'old' attributable stakeholder(s) will not be held to be in control simply by operation of the associate rule.

Example 1 of an attributable stakeholder resigning control

    

VEA ?

Disposal of Assets (general provisions)

Part IIIB, Division 11, Subdivision B VEA

VEA ? (go back)

Example 1: George is the sole attributable stakeholder of a private trust with assets worth $550,000, which includes his principal residence valued at $120,000. In March 2005 George decided to retire and resigns from the trust. He transfers appointorship to his son Jerry. George's deprivation amount is $420,000 ($550,000 less $120,000 principal residence less $10,000 free area). George serves a five-year deprivation period from his date of resignation. As George retains a life interest in his home the value of the principal residence is taken off the deprivation amount.

Example 2 of an attributable stakeholder resigning control

Example 2: Barry and Sue, a married couple, are attributed with 75% of the assets and income of a private company. The total value of the company is $400,000. Barry and Sue's attributable asset amount is $300,000 (75%). Barry and Sue decide to resign control of the company with the third stakeholder gaining 100% control. Barry and Sue's deprivation amount is $290,000 ($300,000 less $10,000 free area). They serve a five-year deprivation period from their date of resignation.

Mortgages and resignations

If a resigning stakeholder holds a mortgage over an asset of the entity, then the issue of whether the stakeholder has genuinely ceded control of the entity must be investigated. The mortgage documents should be examined to ascertain the nature of the mortgage.


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.

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.

 

 

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

  • 100%, or
  • a lower percentage if 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.

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:

  •       dies,
  •       sells the asset, or
  •       formally surrenders the asset.

 

 

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.