Apportioning a Liability of a Controlled Private Company or Trust
Effect of charge or encumbrance on the value of assets
Section 52ZZT VEA
Apportioning a loan or encumbrance
If there is a recognised liability secured against more than one asset of an entity, the value of the liability is shared between the assets in proportion to the respective values of the assets. The liability reduces the value of the assessable asset(s) proportionally, according to the value of the asset(s). Generally a liability will be secured against an asset such as real estate.
Example of apportioning a loan or encumbrance
The total assets of an entity are $500,000. The sole attributable stakeholder's principal home, worth $100,000, is part of the entity assets. The entity has a recognised liability of $200,000 secured against all its assets. The net asset attribution amount for the attributable stakeholder is calculated as follows:
|
Total entity assets |
$500,000 |
|
Less value of principal home |
$400,000 ($500,000-$100,000) |
|
Assessable assets as a % of total entity assets |
80% ($400,000÷$500,000) |
|
Total liability |
$200,000 |
|
Amount of assessable liability |
$160,000 ($200,000x80%) |
|
Attribution % |
100% |
|
Net attributable asset amount |
$240,000 ($500,000-($100,000+$160,000)) |
Apportionment and multiple attributable stakeholders
Attributable stakeholder, asset and income attribution percentage
Section 52ZZJ VEA
If there are multiple attributable stakeholders, any genuine liabilities secured against the assets of the entity must be apportioned before determining each stakeholder's net asset attribution amount. If the principal home of a stakeholder is part of the entity assets then the home is an exempt asset for that stakeholder only.
Example 1 of apportionment and multiple attributable stakeholders
Example 1: Darren, Fiona (a partnered couple) and Terry are attributed with one third each of the assets of a private family trust. The trust has assets totalling $600,000, and includes the principal home of Darren and Fiona which is valued at $100,000. The trust has a liability of $300,000 secured against the assets. The net asset attribution amount for each stakeholder is calculated as follows:
|
Darren & Fiona |
Terry |
|
|
Total entity assets |
$600,000 |
$600,000 |
|
Less value of principal home |
$500,000 ($600,000-$100,000) |
Nil |
|
Assessable assets as a % of total entity assets |
83.33% ($500,000÷$600,000) |
100% |
|
Total liability |
$300,000 |
$300,000 |
|
Amount of assessable liability |
$250,000 ($300,000x83.33%) |
$300,000 ($300,000 x 100%) |
|
Attribution % |
33.33% each |
33.33% |
|
Net attributable asset amount |
$83,333 each (($600,000-(100,000+$250,000)) x33.33%) |
$100,000 (($600,000-$300,000) x33.33%) |
Example 2 of apportionment and multiple attributable stakeholders
Example 2: Three brothers Tony, Dominic and Ben are attributed with one third each of an entity with assets totalling $1,000,000. The principal home of each brother is part of the assets of the entity. Tony's home is valued at $120,000, Dominic's home is valued at $90,000, and Ben's home is valued at $60,000. The entity also has a liability of $300,000 secured against all its assets. The net asset attribution amount for each stakeholder is calculated as follows:
|
Tony |
Dominic |
Ben |
|
|
Total entity assets |
$1,000,000 |
$1,000,000 |
$1,000,000 |
|
Less value of principal home |
$880,000 ($1,000,000-$120,000) |
$910,000 ($1,000,000-$90,000) |
$940,000 ($1,000,000-$60,000) |
|
Assessable assets as a % of total entity assets |
88% ($880,000÷$1,000,000) |
91% ($910,000÷$1,000,000) |
94% ($940,000÷$1,000,000) |
|
Total liability |
$300,000 |
$300,000 |
$300,000 |
|
Amount of assessable liability |
$264,000 ($300,000x88%) |
$273,000 ($300,000x91%) |
$282,000 ($300,000x94%) |
|
Attribution % |
33.33% |
33.33% |
33.33% |
|
Net attributable asset amount |
$205,313 (($1,000,000-($120,000+$264,000)) x33.33%) |
$212,312 (($1,000,000-($90,000+$273,000)) x33.33%) |
$219,311 (($1,000,000-($60,000+$282,000)) x33.33%) |
Source URL: https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/10310-liabilities-private-trust-or-company-01012002/apportioning-liability-controlled-private-company-or-trust