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.    

Valuation methods

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.