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Valuation of the Assets of a Designated Private Trust & Company
Last amended: Attributable assets of a designated private trust and company
An asset of a fixed (non-discretionary) trust or designated private company is any asset (excluding exempt assets, whether a fixed or financial asset that the entity owns (wholly or partially). The value of the assets (including shares and managed investments) of a designated entity is determined by the current market value less any allowable liabilities.
Loans by a trust to an attributable stakeholder
A loan by a trust to an attributable stakeholder may have an unforeseen consequence. The loan becomes an asset of the trust, however it cannot be offset by the borrower (stakeholder) unless it is a secured loan or unsecured but recorded in writing and witnessed by an independent third party. If the loan cannot be offset the amount is maintained twice – as an asset of the family trust and again as an asset of the stakeholder borrower.
A pensioner's estimate may be accepted
A pensioner's estimate of the value of an asset is accepted only where the delegate considers the estimate is commensurate with the current market value. Where there is doubt about its value, the delegate should take all reasonable steps to ascertain the current market value of the asset, such as obtaining an AVO valuation of real estate owned by the company.
Assessing shares in a designated private company
Under the new rules, shares in a designated private company will not be assessed as having any value for pension purposes. This rule also applies to shares held in designated private companies by persons who are not attributable stakeholders. This is to avoid double counting, as the assets of the company are fully attributed to the stakeholder(s) via the attribution process. However the type of company share held by the person may have significance when determining whether a person is an attributable stakeholder of the company, for example whether the shares are 'voting' or 'non-voting' shares.
Determining the Value of an Asset
There are a variety of methods by which a person's share value may be assessed.
Net Asset Backing method is generally preferred
When determining the value of a private company's shares attributed to the stakeholder (where a listed share price is not available), the 'net asset backing' method is generally used. This approach allows the company's asset value, and therefore individual share value, to be readily calculated from the company's financial statements. Adjustment of fixed asset values may be necessary, as these assets may be recorded in the company's balance sheet at their historical value, rather than current market value.
Alternative valuations methods are allowable
Alternative valuation methods may be considered by the delegate where factors in the individual case being examined do not support the use of the net asset backing method. Case law judgments have favourably considered other factors such as the capitalisation of future dividend payments, a company's declining profitability, the agreed share price during earlier company buy-backs, and the shareholder's limited negotiability when selling shares.
Delegate must consider facts
Where a delegate considers a valuation method other than net asset backing, he/she must be satisfied that the shareholder is not able (due to the extent of their individual shareholding) to influence the factors being considered, such as profitability, dividend payment or the share price agreed during an earlier transaction.
Date of effect
The date of effect policy for private trust and company asset value, where annual reviews are undertaken following the receipt of an income tax return or completed financial statements.
An asset means any property, including property outside Australia.
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.
- the value of a person's principal home,
- any motor vehicle provided under the Vehicle Assistance Scheme,
- the value of any medal or decoration awarded for valour, other than used as an investment or hobby,
- up to two funeral bonds where the combined amount invested is within the funeral bond threshold,
- a prepaid funeral or cemetery plot
- value of a superannuation fund investment prior to pension age.
For a full legislative definition see section 52 of the VEA.
An entity means any of the following:
a business partnership,
a corporation sole,
a body politic.
An investment is a managed investment if:
- the money or property invested is paid by the investor directly or indirectly to a body corporate or into a trust fund,
- the assets that represent the money or property invested (the invested assets) are not held in the names of investors,
- the investor does not have effective control over the management of the invested assets, and
- the investor has a legally enforceable right to share in any distribution of income or profits derived from the invested assets.
For a full definition see also:
Sections 5J(1A), 5J(1B) and 5J(1C) of the VEA.
The market value of an asset is the point at which a willing purchaser and a willing, but not anxious vendor, would reach agreement.
The market value of an asset is only decreased by the value of an encumbrance secured against it. The market value of an asset is not reduced by any costs which may be incurred if the asset was to be sold.
The Australian Valuation Office is a business line within the Australian Taxation Office. It provides Commonwealth Government departments, including DVA, with property valuations for assets test assessment purposes. Some of the types of property commonly valued include:
- real estate;
- commercial leaseholds; and
- taxi plates and licences.
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.