Resignation from a Controlled Private Trust or Company on or after 1 January 2002

General provisions

An attributable stakeholder who resigns control of a private trust or private company on or after 1 January 2002 will be treated in a manner comparable to other people who gift or relinquish assets. That is, the deprivation provisions will apply to them from the date of resignation (subject to the assessed asset attribution percentage of the structure attributed to the stakeholder).

Genuine resignation requirements

A genuine resignation will be accepted as having occurred where both the attributable stakeholder and their spouse fulfil all the following criteria:

• relinquish all formal roles and control in respect of the entity,
• if applicable, relinquish their shares and directorships,
• relinquish all beneficial interest ie they cannot be income or asset beneficiaries of the entity. This could be evidenced by:

• removing themselves as a beneficiary from the trust deed, usually requiring the deed to be resealed and stamp duty payable,
• altering the trust deed stipulating that they irrevocably exclude themselves and their partner as the beneficiaries of any income or asset distribution or the receipt of any other benefit, or
• creating a separate deed to irrevocably renounce the beneficial interest of the person and their partner in the trust, and

• making a written declaration that they will not exert any control over, or benefit in any way from, the entity.

One exception to the above rules is that the resigning attributable stakeholder(s) can also retain a life interest in their principal residence if the residence is part of the assets of the trust or company. If the new attributable stakeholder/s is an associate, the associate rule will not apply. The 'old' attributable stakeholder(s) will not be held to be in control simply by operation of the associate rule.

Example 1 of an attributable stakeholder resigning control

Example 1: George is the sole attributable stakeholder of a private trust with assets worth $550,000, which includes his principal residence valued at $120,000. In March 2005 George decided to retire and resigns from the trust. He transfers appointorship to his son Jerry. George's deprivation amount is $420,000 ($550,000 less $120,000 principal residence less $10,000 free area). George serves a five-year deprivation period from his date of resignation. As George retains a life interest in his home the value of the principal residence is taken off the deprivation amount.

Example 2 of an attributable stakeholder resigning control

Example 2: Barry and Sue, a married couple, are attributed with 75% of the assets and income of a private company. The total value of the company is $400,000. Barry and Sue's attributable asset amount is $300,000 (75%). Barry and Sue decide to resign control of the company with the third stakeholder gaining 100% control. Barry and Sue's deprivation amount is $290,000 ($300,000 less $10,000 free area). They serve a five-year deprivation period from their date of resignation.

Mortgages and resignations

If a resigning stakeholder holds a mortgage over an asset of the entity, then the issue of whether the stakeholder has genuinely ceded control of the entity must be investigated. The mortgage documents should be examined to ascertain the nature of the mortgage.