Resignation from a Controlled Private Trust or Company before 1 January 2002

Resignation from a discretionary trust before 1 January 2002

As a discretionary trust[glossary:'s:] assets and income do not become assessable until 1 January 2002, the deprivation provisions do not apply if a person resigns from the trust before that date. If a person is already serving a five-year deprivation period arising from having originally gifted assets to the trust, any deprivation amount will continue to be assessed for the balance of the five-year period. However, if the person making the gift is deemed to still be the controller, the amount of the disposition is to be reduced by the person's attribution percentage from 1 January 2002.

Example of an attributable stakeholder resigning control with life interest in family home

Henry and Mary are the appointors and trustees of a discretionary family trust that was set up 7 years ago. The assets of the trust total $700,000, including the family home that is valued at $170,000. Henry and Mary are in receipt of a service pension. They realise that come 1 January 2002 they will be attributed with the assets and income of the trust and will no longer be entitled to the pension. On 1 November 2001 they resign from the trust, keeping a life interest in the family home. Their entitlement to pension is not affected.

Resignation from a fixed unit trust or private company before 1 January 2002

If a person resigns from a fixed unit trust or private company before 1 January 2002 and relinquishes their units or shares for less than the value assessed (using the net asset backing method), the deprivation provisions will apply.    

Example of a resignation from a private company – deprivation applies

Rodney and Marie (a married couple) are the majority shareholders in a private company. They hold 95 voting shares between them. Their shares are valued at $50,000 (using the net asset backing method). On 20 September 2001, Rodney and Marie resign from the company and sell the shares to their children for $15,000. Rod and Marie are subject to deprivation for the amount of $25,000 ($50,000-$15,000-$10,000(gifting free area)).