Last updated 5 January 2007
When the aggregation rules apply
When the main business activity undertaken by a company is primary production activities, the aggregation rules of section 52CA of the VEA apply. These rules over-ride the general provision of section 52C, concerning deduction of liabilities secured against assets.
Sole traders
If a sole trader runs a farm, the aggregation assessment involves:
- adding all the sole trader's primary production assets (this excludes the person's principal home)'
- adding all the sole trader's primary production liabilities (this excludes liabilities relating to non-primary production assets such as the principal home and curtilage), and
- deducting the value of the total primary production liabilities from the value of the total primary production assets to give the sole trader's net primary production assets.
Example of calculation of the aggregation assessment
The table below provides an example of the calculation of the aggregation assessment when a sole trader runs a farm.
|
Item |
Value |
|
Whole property ('mixed asset') |
$450,000 |
|
Home & curtilage |
$150,000 |
|
Primary production asset |
$300,000 ($450,000 - $150,000) |
|
Liability related to the whole farm property |
$240,000 |
The proportion of the liability that is a primary production liability is:
[the liability on the whole property x (the value of the mixed asset - value of home & curtilage )] divided by the value of the mixed asset,
ie [240,000 x (450,000 - 150,000)] divided by 450,000 = $160,000.
Note : If there are no other primary production assets or liabilities related to them, the net primary production asset is $300,000 minus $160,000, ie $140,000, which would be maintained as the net primary production asset.
Calculation of liabilities in partnerships
A partner's share of the partnership assets or liabilities is determined by the balance of their capital accounts, as described in the following table.
|
If the person's capital account has a... |
Then that value is an assessable primary production... |
|
positive value, |
Asset. |
|
negative value, or deficit, |
Liability. |
Partnership liability
If a partnership liability is secured against mixed assets privately owned by the person, and which are encumbered, the value of the liability which relates to the non-primary production part of that asset is not included in the aggregation assessment. For example an encumbered mixed asset may be mortgaged. The partnership balance sheet is adjusted to arrive at a capital account figure for aggregation assessment.