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The purpose of this Departmental Instruction (DI) is to amend paragraphs 62 to 67 of DI B45/95. That DI sought to clarify policy and provide procedural guide-lines for the calculation of income for service pension assessment and overpayment purposes, with paragraphs 62 to 67 dealing specifically with private company/family trust income.

Assessment of income distribution from private company/family trust in the case of a current assessment

2.It is current policy that, in the case of a current assessment, the amount of income for or received from a private company/family trust is ascertained from the Income Tax Return (ITR) and/or accounts of the private company/family trust or the individual in receipt of private company/family trust income.

3.This routine method of calculating private company/family trust related income is employed because the financial affairs of such entities are normally calculated and compiled for an entire financial year for accounting and taxation purposes and precise information in respect of income attributable to the entity is therefore not usually available until the end of a financial year ie., it is not generally possible to accurately estimate company/family trust profit at any time before accounts/tax returns are finalised. Company and family trust ITR's are therefore typically regularly lodged with the Australian Taxation Office (and therefore made available to DVA by pensioners) anything up to 6 months after the end of the financial year following finalisation of the accounts.

4.Where company/family trust income is distributed to an individual, a similar delay will occur because that person will not be able to lodge an ITR until the company income has been finalised in the company/family trust accounts and this information has been passed on to the person for inclusion in their personal ITR.

5.As such, income from private companies and family trusts, whilst not held in an assessment for a financial year, is usually held in an assessment from the date of receipt of that information by the Department for a 12 month period or until updated by information from the following year's ITR.

6.This approach is seen to be reasonable for both pensioners and DVA alike in that it does not place pressure on pensioners to advise of private company/family trust income as soon as it is received and before such income has been accounted for and offset in the entity's balance sheets for the financial year.

Retrospective assessment of income distribution from private company

Current policy as stated in DI B45/95

7.Paragraphs 64 to 67 of DI B45/95 state as follows (emphasis added):

"Family trusts/private companies

Retrospective calculation income - notification not received

64.If notification of income was not received an overpayment exists.  The date of effect is the day after the trust or company commenced to distribute income.

65.Income to be held is calculated as follows:

  • in the 1st financial year - actual income received or income which is receivable, is converted to a fortnightly amount by dividing total amount by the number of fortnights in that period

  • for the ensuing years - as per tax returns (ie income earned in the previous financial year, is held for the ensuing financial year).".

8.As may be seen, the DI effectively suggests that retrospective calculation of private company/family trust related income should be based on information for the previous financial year and applied for the next financial year. However, as outlined below, this is not in fact current policy.

Actual current policy

9.The policy for retrospective calculation of private company/family trust related income is no different to the policy for routine calculation of such income for a current assessment. That is, private company/family trust related income must be calculated based on information in respect of such income for the previous financial year and applied to the client assessment from the date of receipt of that information. In turn, that information is updated with information in respect of the next financial year and also applied from the date of receipt of that updated information.

10.Therefore, if an ITR in respect of a given financial year was not completed until the following December and that information was not disclosed to this Department, retrospective calculation of that income should have a start date of December - the date that the information, if disclosed in the normal fashion, would have reasonably become available to the pensioner and the Department.

11.Again, this policy exists in the interests of equitable assessment of all service pensioners when calculating private company/family trust income, regardless of whether the assessment is current or retrospective.

Amendments to the General Orders Service Pension (GOSP)

12.Amendments reiterating the above-mentioned policy will be included in the "Companies" and "Trusts" chapters of the GOSP at the next available release of that document.


13.Any further queries in respect of this matter should be directed to Martin Dibb on telephone 06-2896751, fax. 06-2894854, LAN C-C-PAA-1.