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Aggregation Assessment of a Controlled Primary Production Private Trust & Company
Aggregation rules
VEA ?
If a pensioner is an attributable stakeholder of a controlled private trust or controlled private company and the main business activity undertaken by the trust or company is primary production, the aggregation rules of section 52CA of the VEA are to apply. That is the value of all the stakeholder's primary production liabilities can be offset against their primary production assets. This includes primary production assets personally owned by the stakeholder. The stakeholder's principal home (and curtilage) is an exempt asset and is not used in the aggregation assessment, even if that home is on the primary production land.
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Example of aggregation of primary production assets
Jim is a 50% attributable stakeholder of a private family trust. His son Slim is also a 50% stakeholder. The trust is part of a primary production enterprise. Jim holds the title to the primary production land in his own name. The trust owns the plant, equipment and stock, and carries the liabilities of the enterprise. Jim's primary production assets and liabilities include the primary production land he personally owns (minus his principal home and curtilage) and his share of the trust primary production assets and liabilities.
Primary production liabilities
VEA ?
A primary production liability is any liability the attributable stakeholder has, that has been obtained for the purpose of running a primary production business. Care should be taken when determining the attributable stakeholder's primary production liabilities as non-primary production assets and liabilities or exempt assets are not considered to be an asset or liability for aggregation purposes. If a liability is held over both a primary production and non-primary production or exempt asset, the liability must be apportioned to determine the primary production liability for the stakeholder.
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Primary production liabilities and the principal home
Where a liability is held over a property that includes the stakeholder's principal home the liability must be apportioned to determine the amount can be used to offset any primary production assets for aggregation purposes. This is because the home and curtilage are not primary production assets for the homeowner. An encumbrance that is held over a primary production asset for a third party also could not be used to offset the value of that asset, as the encumbrance is the liability of the third party.
Example of loan not allowed as a primary production liability
George is a primary producer. He secures a mortgage over a portion of his primary production land. The purpose of the mortgage is to secure a loan for his son who wishes to buy a holiday home. The mortgage cannot be used to offset the primary production assets for aggregation purposes, as the liability is the son's, and the purpose of the loan is not primary production.
Apportionment
If:
- the primary production assets include the principal residence (and curtilage) of the stakeholder, and/or
- a liability is secured over the assets (regardless of whether the primary production assets are entity or personal assets),
then the assets and liabilities must be apportioned to determine the net primary production asset amount for the attributable stakeholder.
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Aggregation and multiple primary production entities
If a person is an attributable stakeholder of multiple entities that have primary production assets and liabilities, then all the primary production assets and liabilities of those entities are brought into account when determining the stakeholder's aggregation assessment (subject to the asset attribution percentage the stakeholder has in the entities). This means that assets and liabilities from one primary production business may be aggregated with other primary production assets and liabilities owned or attributed to the stakeholder.
Effect of certain liabilities on the value of assets used in primary production
Section 52CA VEA
Effect of charge or encumbrance on value of assets
Section 52ZZT VEA
Effect of unsecured loan on value of assets
Section 52ZZU VEA
Value of company's or trust's assets etc
Section 52ZZV VEA
According to section 52ZZJ of the VEA, a person is an attributable stakeholder if a company or trust is a controlled private company or trust in relation to the individual unless the Commission determines otherwise.
According to section 52ZZH of the VEA, a trust is a controlled private trust in relation to an individual if the company is a designated private trust and the individual passes either the:
- control test; or
- source test .
According to section 52ZZC of the VEA, a company is a controlled private company in relation to an individual if the company is a designated private company and the individual passes either the:
Primary production means:
- production resulting directly from the cultivation of land,
- the maintenance of animals or poultry for the purpose of selling them or their bodily produce, including natural increase,
- fishing operations, or
- forest operations,
- and includes the manufacture of dairy produce by the persons who produced the raw material used in that manufacture.
The principal home has the meaning given by subsection 5LA(1) of the VEA and subsection 5LA(2) of the VEA. The principal home of a person is generally the place in which they reside. In certain circumstances, however, the principal home of a person can be the place in which they formerly resided. The following property is regarded as part of the principal home.
- the residence itself (e.g. house, flat, caravan),
- permanent fixtures (e.g. stoves, built-in heaters, dish-washers, light fittings and affixed carpets),
- [glossary:curtilage:DEF/Curtilage] (i.e. two hectares or less of private land around the home where the private land use test has been satisfied, or all land held on the same title as the person's principal home where the extended land use test has been satisfied), or
- any garage, shed, tennis court or swimming pool used primarily for private purposes provided it is on the same title as the principal home.
Curtilage is the land adjacent to the exempt principal home. A certain amount of curtilage is disregarded for the assets test.. The amount of curtilage that is exempt depends on whether the private land use test described in section 5LA(3) of the VEA, or the extended land use test described in section 5LA(4) of the VEA, is satisfied. Under the private land use test, up to two hectares on the same title as the principal home may be exempt. Under the extended land use test, all land on the same title as the principal home may be exempt.
An exempt asset is one that is disregarded when calculating the value of a person's assets under the assets test. Examples of exempt assets include:
- the value of a person's principal home,
- any motor vehicle provided under the Vehicle Assistance Scheme,
- the value of any medal or decoration awarded for valour, other than used as an investment or hobby,
- up to two funeral bonds where the combined amount invested is within the funeral bond threshold,
- a prepaid funeral or cemetery plot
- value of a superannuation fund investment prior to pension age.
For a full legislative definition see section 52 of the VEA.
Primary production enterprise means a business in Australia that consists of primary production.
For a primary production trust arrangement to qualify for the primary production concession, more than 70% of the net value of the asset of the trust (excluding the net value of the principal home of the farmer if it is owned by the trust and on the primary production land) must relate to assets used wholly or principally for the purpose of carrying on a primary production enterprise.
An exempt asset is one that is disregarded when calculating the value of a person's assets under the assets test. Examples of exempt assets include:
- the value of a person's principal home,
- any motor vehicle provided under the Vehicle Assistance Scheme,
- the value of any medal or decoration awarded for valour, other than used as an investment or hobby,
- up to two funeral bonds where the combined amount invested is within the funeral bond threshold,
- a prepaid funeral or cemetery plot
- value of a superannuation fund investment prior to pension age.
For a full legislative definition see section 52 of the VEA.
If the individual is an attributable stakeholder of the trust or company, the individual's asset attribution percentage in relation to the trust or company is:
- 100%, or
- a lower percentage if the Commission determines otherwise.