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Treatment of Assessable Assets - Private & Unlisted Public Companies - Not Assessed under New T & C Rules

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Treatment of assessable assets

The following table describes the treatment of assessable assets and provides references to further information, if appropriate.    

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Policy Library - Assets

Chapter 10.2

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Assessable Asset

Treatment/Further Information

Shares in a private or unlisted public company, which carry rights to participate in capital distributions

Assess using the market value if a market exists. If no market exists, generally the net asset backing method is used.

Shares in a private or unlisted public company, which do not carry rights to participate in capital distributions

Assess using the market value if a market exists. If no market exists use the amount paid for the shares or some other valuation.

Assets, excluding the principal residence, which are transferred or sold to the company by the person and/or partner     

Deprivation of assets may apply if the person did not receive adequate financial consideration.

  • Principal residence of the person owned by the company

Deprivation of assets may apply unless valuable consideration is received, even though the value of a person's interest in their principal residence is exempt from the assessment of the assets test.

Partly paid shares

If partly paid shares are NOT asset backed, the assessable value is:

  •       face value of shares, MINUS
  •       any amount still owing on the shares.

If the shares are asset backed, ALL shares (both fully paid up and partly paid up) may be valued using the net asset backing method. The assessable value is;

Loans to a private company

Shareholder loans are the assets of the individual shareholder and must be maintained for assets test purposes. Deeming rules apply to outstanding loan balances. This recognises that a company is a separate legal entity. Shareholders' loans should not be removed from the balance sheet of the company. These loans represent a liability of the company which, if not repaid earlier, will be repaid when the company is wound up.

Failed loans

Loans that No Longer Exist.     

Governing director's shares

If the Articles of Association...

THEN the asset value is...

EXPLICITLY state that the person has the right to participate in capital distribution,

market value OR if no market exists, the net asset backing method is used.     

EXPLICITLY state that the person has NO right to participate in capital distribution,

market value OR if no market exists, the amount paid for the shares or some other valuation.     

do not give ANY shareholder the right to participate in capital distribution AND do not state how the assets of the company are to be distributed,

market value OR if no market exists, the net asset backing method if appropriate.     

Distribution of capital when a company is wound-up

If a company has been, or is being, wound-up, any distribution of assets is not income.     


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.

For adequate financial consideration to be received when disposing of an asset, a person must receive value in the form of money or assets. Adequate financial consideration can be accepted when the amounts received reasonably equate to the market value of the asset. It may be necessary to obtain a valuation from a property valuation service provider.

When disposing of income, in order for adequate financial consideration to be received, the person must receive money, goods or services which approximate in value to the rate of disposed income. If a person disposes of an income producing asset and receives adequate financial consideration in money or money's worth for the asset, then it can be accepted that they have received adequate financial consideration for the disposal of both the income and the asset.

 

 

Valuable consideration is defined as receipts not in money form but capable of being valued in money terms.

An entity means any of the following:

an individual,

a company,

a trust,

a business partnership,

a corporation sole,

a body politic.