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Notional annual rate of ordinary income - unrealisable assets
Last amended: 10 October 2007
Unrealisable assets are deemed to produce a notional income. The notional annual rate of ordinary income is assessed separately for each unrealisable asset.
Notional annual rate of ordinary income calculation
A person's notional annual rate of ordinary income from an unrealisable asset is the lower of:
- 2.5% of the value of the person's and the person's partner's unrealisable asset, or
- the amount per year that could reasonably be expected to be obtained from a purely commercial application of the person's and the person's partner's unrealisable assets. Where the unrealisable asset is a property, this amount will be the commercial lease value.
(i) If a person receives income from an unrealisable asset, special provisions apply.
(ii) Notional ordinary income is not calculated using this method if the unrealisable asset is a property and is occupied by:
- a person's near relative or a long term tenant with a low income, or
- one partner of a separated couple.
If the occupier is a near relative or a long term tenant with a low income, the commercial lease value is calculated as 20% of the total income of the occupant (and partner) of the property. Total income includes all social security income support payments.
If the occupier is one partner of a separated couple, the notional ordinary income calculation depends on rental arrangements between the non-occupier and the occupier.
Notional income for separated couples
If the occupying partner:
Then notional income is:
is paying rent to the non-occupier
t — he lesser of:
Example: bank charges are reasonable expenses
does not have a rental agreement with the non-occupier
the lesser of:
Example: a pensioner that has a 50% interest in the home is taken to receive 50% of the commercial lease value
refuses to pay rent to the non-occupying partner, pending property settlement
Note: the non-occupier must produce clear evidence that an occupying partner refuses to pay rent – eg. a letter from a partner's solicitor
Pensioner receives income from an unrealisable asset
If a pensioner receives income from an unrealisable asset, then notional ordinary income is:
- the lower of 2.5% of the asset's value, or
- the commercial lease value, minus
- actual income received.
Exception: The actual income received is used to calculate the rate under the hardship provisions if the actual income received is greater than calculated notional ordinary income.
For non-farming properties, the commercial lease value of an asset is the value that can reasonably be obtained by using the asset. Generally this is the asset's market rental value.
For farming properties, the commercial lease value is assessed by the AVO. Reassessment may be requested if the valuation does not sufficiently take into account any of the following:
- inherent characteristics of the land, eg soil conditions, erosion, salinity, condition of fencing,
- demand for the land,
- general farm incomes,
- legal impediments to commercial use, eg an existing lease,
- expenses incurred if the farm is leased, eg rates, insurance, interest,
- value of water licences (if relevant), or
- value of tobacco quotas (if relevant).
Note: If the asset does not have commercial lease value then notional income for the asset cannot be assessed.