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Associate Rule

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Associates rule introduction

Control of the assets and income of a designated private trust or a designated private company may be established by looking at the level of informal control that individuals or members of a couple hold through their associates. An associate is a person(s) or entity(s) who could be expected to act in accordance with the individual's or couple's wishes.

Categories of associates

Associates of an individual may include:

  • a relative,
  • an entity,
  • an entity that is a declared associate of the individual,
  • a business partner of the individual or a business partnership in which the individual is a business partner,
  • if a business partner of the individual is an individual - the spouse or child of that business partner,
  • a trustee of a trust, whether the trustee is an individual or other entity that is an associate of the individual,
  • a company, where the company is sufficiently influenced by the individual or other entities that are associates of the individual,
  • a company, in which a majority voting interest is held by the individual or other entities that are associates of the individual.
Application of the associates rule

The fact that a person is identified as an associate does not mean that they would automatically be attributed with the assets or income of the entity. If a person was not the source of the structure's funds, or in control of the structure, and had never received any benefit from the structure, they would not be attributed with control. If a person can show that a genuine gift or a genuine loan has been made to a private trust or private company, the associates rule will not apply. Nor will the associates rule apply if a person genuinely resigns their involvement in a controlled private trust or private company.    


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.

An asset means any property, including property outside Australia.

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.

 

 

According to section 52ZZB of the VEA, a trust is a designated private trust unless:

the following conditions are satisfied, that is the trust:

  • units are held by 50 or more persons, and

  • the trust was not created, continued in existence or operated under a scheme that was entered into or carried out for the sole or dominant purpose of enabling any individual/s to avoid Division 11A (means test of private companies and private trusts), section 52ZZB of the VEA or the equivalent section of the Social Security Act, or

  • the trust is a complying superannuation fund: or
  • the trust is an excluded trust.

 

 

According to Section 52ZZA of the VEA, a company is a designated private company at a particular time if the company:

  • satisfies at least 2 of the following conditions in relation to the financial year that ended immediately before that time:
  • gross operating revenue is less than $25 million;

  • gross assets at the end of the financial year are less than $12.5 million;

  • the company has fewer than 50 employees at the end of the financial year, or

  • the company came into existence after the end of the financial year that ended immediately preceding that time, or
  • the company is a declared private company (DPC) ,

and the company is not an excluded company.

 

 

According to Section 5E(2) of the VEA a person is a member of a couple, if they are:

  • legally married to another person and is not living separately and apart from the other person on a permanent basis; or
  • living in a prescribed registered relationship with the other person (whether of the same sex or a different sex) and is not living separately and apart from that other person on a permanent basis; or
  • all of the following conditions are met:
  • living with another person, whether of the same sex or a different sex;
  • not legally married to that person;
  • in a de facto relationship with that person; and
  • not in a prohibited relationship

The term “partnered” is also commonly used.

An associate of an individual for the purposes of private trusts and private companies has the meaning given by section 52ZQ of the VEA.

 

 

A relative for the purpose of Part IIIB, Division 11A (means test treatment of private companies and private trusts), in relation to a person, has the meaning given by section 52ZP of the VEA.

 

 

An entity means any of the following:

an individual,

a company,

a trust,

a business partnership,

a corporation sole,

a body politic.

Commission may determine in writing that an entity having been included in a specified class of entities is a declared associate of an individual for the purposes of section 52ZQ of the VEA.

 

 

Trustee has two meanings depending on the context, (i) and (ii).

(i) a person who looks after someone else's affairs

According to section 202 of the VEA, a trustee is a person appointed by the Commission to administer the financial affairs of a pensioner who may be incapable of managing their own affairs for reasons such as:

  • age,
  • infirmity,
  • ill health, or
  • improvidence.

These criteria include circumstances where a pensioner has a psychiatric disorder or a mental illness as a result of alcohol or drug addiction.

A trustee can be appointed, with or without the consent of the pensioner and once appointed, a trustee has full control of the pension payment.

(ii) a person responsible for administration of a trust

According to section 52ZO of the VEA, trustee has the same meaning as in the Income Tax Assessment Act 1997.

 

 

Company has the same meaning as in the Income Tax Assessment Act 1997.

 

 

For the purposes of Part IIIB, Division 11A (means test treatment of private companies and private trusts), a company is sufficiently influenced by an entity or entities if the company, or its directors:

  • are accustomed or under an obligation (whether formal or informal), or
  • might reasonably be expected,

to act in accordance with the directions, instructions or wishes of the entity or entities.

For the purposes of Part IIIB, Division 11A (means test treatment of private companies and private trusts), an entity or entities hold a majority voting interest in a company if:

the entity or entities are in a position to cast, or

control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the company.

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.