Assessable Income from Private Companies pre 01/01/2002

External

Policy

Basis of assessment of income

The assessment of income received by a person from a company is based on the type and current rate of income, if any. Income currently maintained should cease to be assessed, if:

the person advises that they are no longer receiving any income, or

a company in which a person has an interest is placed in liquidation.

In this case the shareholders effectively no longer have access to the income.

Assessment of profit from a private company

The profit of a private company is not the profit of the individual shareholders. The shareholders have no entitlement to any profits until a distribution is made by the directors, in the form of dividends. These dividends are assessable income, as described in the following table.

If a person is....	Then the
a pensioner	cash dividends paid to them are held as income for 12 months from the date distributed, and VEA → Section 46A VEA VEA → (go back) franking credits ,also known as imputation credits, paid with the dividend are income for the purpose of the pension income test.

Summary table - assessable income for pensions

The following table summarises the assessable income of a pensioner involved in a private company.

Type of income	Treatment
Company profit	Not assessed under any circumstances. There is no need to check for allowable deductions, and the company profit and loss statement is not adjusted. Income, apart from deeming, is only assessed when the company pays it to the person in some way.
Dividends on shares (including franking credits)	Assessed as their income for 12 months from the date of distribution.
Wages, salaries, stipends, honoraria and director's fees	Use the current rate payable from the latest personal income tax return. Assess the current rate received. Discontinue the assessment if salary or wages cease. If received as a lump sum, the normal lump sum provisions apply.
Royalties	Assess them as ordinary income.
Fees, Commissions	Assess the current rate payable and received from the latest personal income tax return, unless a more recent figure is available. If regular payments are received as an employee, assess the current gross income received and do not maintain when the payment ceases. If the payment is received from self-employment, assess the current net profit and maintain it on an annual basis.
Salary packaging and fringe benefits	Assess them as income. They are valuable consideration and the same as income from salary and wages. The non -grossed up amount of the fringe benefit is assessed. More → Policy Library – Overview of Fringe Benefits Section 5.8.1 More → (go back)
Loans by the person to the company	Assess them as a financial investment of the person. Assess income under the deeming provisions. Disregard any actual interest income received from the company. No deduction is allowed from the deemed income for investment expenses. VEA → Section 5J(1) VEA VEA → (go back)
Loans by a company to the person	Care should be taken that payments characterised as loans are not disguised distributions. If the person can provide evidence that borrowings are bona fide loans do not assess them as income. Example: Bona fide loans will have a loan contract. If evidence is not provided, assess the distribution as income. VEA → Section 46A VEA VEA → (go back)
Drawing back on loans made to a company	Do not assess it as income.
Actual interest received on loans made to the company by the person	Disregard. Assess them as financial investments. They are subject to the assessment of income under deeming provisions.
Deemed income on deprived assets	Deeming applies to the value of deprived assets. More → Overview of Deprivation Provisions Section 9.6.1 More → (go back)
Rent paid to the person	Assess as rental income. Allowable deductions reduce the assessable amount.