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Non-Recognised Liabilities of a Controlled Private Company or Trust

Liabilities - loan or debt

Liabilities can include loans that have been made to a trust or company or debts owed by a trust or company. Loans can be from controllers, associates or a third party. Loans can also have been made by another trust or company or debts can be owed by the entity to another trust or company. Liabilities on the balance sheet can generally be deducted from the value of assets to determine the assessable value of a trust or company subject to the exceptions in this section.    

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Non-recognised loan and debt



Circumstances where a loan to or debts owed by an entity will not be recognised as a liability of that entity are:

  • where no written agreement exists which is signed by all parties to the agreement and witnessed by a third party (associates are not considered to be third parties), and
  • loans from, or debts owed to, a person who is under 18 years of age.
Loan requirements

Loans must fulfil the following requirements:

  • the loan must be in the name of the trust or company,
  • an actual lending of money or an asset of particular value to a trust or company must have occurred, and
  • there must be a clear intention by the trust or company to repay.
Treatment of a non-recognised loan and debt

A loan that is not recognised as a liability of an entity will still be considered to be a personal financial asset of the person making the loan and is subject to the deeming provisions.

Company has the same meaning as in the Income Tax Assessment Act 1997.



An associate of an individual for the purposes of private trusts and private companies has the meaning given by section 52ZQ of the VEA.



An entity means any of the following:

an individual,

a company,

a trust,

a business partnership,

a corporation sole,

a body politic.

An associate of an individual for the purposes of private trusts and private companies has the meaning given by section 52ZQ of the VEA.



The following investments all meet the definition of a loan:

  • debentures,
  • government and semi-government bonds,
  • bank bills
  • commercial bills,
  • non-convertible notes, and
  • capital notes.

Note – a person is not treated as having made a loan merely because:

  • the person has an account with a financial institution, or
  • the person has paid an entry contribution.



According to section 5J(1) of the VEA a financial asset means;


In 1990 the government introduced legislative changes called “deeming” to simplify the assessment of cash deposits and income from certain investments. These changes were made:

  • in response to pensioner concerns about complex income and assets test rules;
  • to encourage pensioners to maximise their private income.

Deemed income is the minimum rate that the government expects income support pensioners to earn from investments.

Banks created “pensioner accounts” which paid interest at the deeming rate set by the government.

On 1 July 1996 further changes meant the deeming rate was applied to all financial assets as defined in section 5J(1) of the VEA.