This section contains information on the assessment of the assets [2] of Controlled Private Trusts [2] and Controlled Private Companies [2].
An asset means any property, including property outside Australia.
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:
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:
Last amended: Attributable assets of a designated private trust and company
An asset [2] of a fixed (non-discretionary) trust or designated private company [2] is any asset (excluding exempt assets [2], whether a fixed or financial asset [2] that the entity [2] owns (wholly or partially). The value of the assets (including shares and managed investments [2]) of a designated entity [2] is determined by the current market value [2] less any allowable liabilities.
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A loan by a trust to an attributable stakeholder may have an unforeseen consequence. The loan becomes an asset of the trust, however it cannot be offset by the borrower (stakeholder) unless it is a secured loan or unsecured but recorded in writing and witnessed by an independent third party. If the loan cannot be offset the amount is maintained twice – as an asset of the family trust and again as an asset of the stakeholder borrower.
A pensioner's estimate of the value of an asset is accepted only where the delegate considers the estimate is commensurate with the current market value. Where there is doubt about its value, the delegate should take all reasonable steps to ascertain the current market value of the asset, such as obtaining an AVO [2] valuation of real estate owned by the company.
VEA ? [5]
Under the new rules, shares in a designated private company will not be assessed as having any value for pension purposes. This rule also applies to shares held in designated private companies by persons who are not attributable stakeholders [2]. This is to avoid double counting, as the assets of the company are fully attributed to the stakeholder(s) via the attribution process. However the type of company share held by the person may have significance when determining whether a person is an attributable stakeholder of the company, for example whether the shares are 'voting' or 'non-voting' shares.
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There are a variety of methods by which a person's share value may be assessed.
When determining the value of a private company's shares attributed to the stakeholder (where a listed share price is not available), the 'net asset backing' method is generally used. This approach allows the company's asset value, and therefore individual share value, to be readily calculated from the company's financial statements. Adjustment of fixed asset values may be necessary, as these assets may be recorded in the company's balance sheet at their historical value, rather than current market value.
Alternative valuation methods may be considered by the delegate where factors in the individual case being examined do not support the use of the net asset backing method. Case law judgments have favourably considered other factors such as the capitalisation of future dividend payments, a company's declining profitability, the agreed share price during earlier company buy-backs, and the shareholder's limited negotiability when selling shares.
Where a delegate considers a valuation method other than net asset backing, he/she must be satisfied that the shareholder is not able (due to the extent of their individual shareholding) to influence the factors being considered, such as profitability, dividend payment or the share price agreed during an earlier transaction.
The date of effect policy for private trust and company asset value, where annual reviews are undertaken following the receipt of an income tax return or completed financial statements.
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10.3.8/Discretionary Trust, Rural Succession Trust, and Fixed Unit Trust [8]
10.3.10/Non-recognised Liabilities of a Controlled Private Company or Trust [9]
10.3.10/Recognised Liabilities of a Controlled Private Company or Trust [10]
Attribution of assets
Section 52ZZR [12] VEA
When attributable asset is unrealisable
Section 52ZZS [12] VEA
Determining the Value of an Asset
Section 10.2.2 [14]
10.3.11/Capital Injection in return for Equity in a Private Trust or Company [15]
An asset means any property, including property outside Australia.
According to Section 52ZZA of the VEA, a company is a designated private company at a particular time if the company:
gross operating revenue is less than $25 million;
gross assets at the end of the financial year are less than $12.5 million;
the company has fewer than 50 employees at the end of the financial year, or
and the company is not an excluded company [2].
An exempt asset is one that is disregarded when calculating the value of a person's assets [2] under the assets test [2]. Examples of exempt assets include:
For a full legislative definition see section 52 of the VEA.
According to section 5J(1) [19] of the VEA a financial asset means;
An entity means any of the following:
an individual,
a company,
a trust,
a business partnership,
a corporation sole,
a body politic.
An investment is a managed investment if:
For a full definition see also:
Sections 5J(1A), 5J(1B) and 5J(1C) of the VEA [20].
A designated entity includes either a Designated private trust [2] or designated private company [2].
The market value of an asset [2] is the point at which a willing purchaser and a willing, but not anxious vendor, would reach agreement.
The market value of an asset is only decreased by the value of an encumbrance secured against it. The market value of an asset is not reduced by any costs which may be incurred if the asset was to be sold.
The Australian Valuation Office is a business line within the Australian Taxation Office. It provides Commonwealth Government departments, including DVA, with property valuations for assets test assessment purposes. Some of the types of property commonly valued include:
According to section 52ZZJ of the VEA [19], 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.
If an individual lives in a home that is owned by a private company or private trust in which they have an interest, the home is assessed as the individual's principal home [2] if they have reasonable security of tenure. An individual is a homeowner if they have a right or interest in the place they occupy as their home, and the right or interest gives them reasonable security of tenure.
If a formal or written agreement between a company [2] or trust and an individual gives the individual the right of occupancy at will or a long term lease then:
The principal home has the meaning given by subsection 5LA(1) [19] of the VEA and subsection 5LA(2) [19] 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.
Company has the same meaning as in the Income Tax Assessment Act 1997.
A person is a homeowner if they have a right or interest, which gives reasonable security of tenure in the principal home.
Refer to sections 52Q and 52R of VEA for the definition when determining if a person is a considered to be a homeowner when living in a special residence.
A person is also considered to be a homeowner if they have sold their home in the previous 12 months and intend to use part or all of the proceeds to purchase another home.
The principal home has the meaning given by subsection 5LA(1) [19] of the VEA and subsection 5LA(2) [19] 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.
Last amended: 20 March 2012
Situations where an individual is considered to have an interest in a controlled private company or controlled private trust include where they are:
If the principal home [2] of a sole attributable stakeholder or members of a couple [2] who are the only attributable stakeholders is part of the entity [2] assets which they control [2], then the value of their home (and curtilage [2]) is an exempt asset [2] (provided the individuals can demonstrate that they have reasonable security of tenure in the home).
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If the entity assets include the principal homes of multiple attributable stakeholders then the value of the principal home (and curtilage) of each stakeholder is an exempt asset for that stakeholder only(provided the individuals can demonstrate that they have reasonable security of tenure in the home). The formula for calculating the asset attribution amount of an individual (where there are no liabilities against the home) is as follows:
(total entity assets less the value of principal home) x asset attribution percentage [2]
However, where liabilities are involved, the value of liabilities secured against the assets and associated allowable income deductions for interest payable are reduced in line with the exemption given for the principal home.
More ? [27]
Some organisations provide accommodation through a company structure for particular groups, such as the elderly or people with a disability, on a shared equity basis. The homeowner [2] status of individuals living in shared equity housing is assessed using the provisions for special residences [2]. The amount paid for shares in the company operating the housing is regarded as being the person's entry contribution amount.
More ? [28]
According to section 52ZZJ of the VEA [19], 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.
Trustee has two meanings depending on the context, (i) and (ii).
(i) a person who looks after someone else's affairs
According to section 202 of the VEA [19], a trustee is a person appointed by the Commission to administer the financial affairs of a pensioner who may be incapable of managing their own affairs for reasons such as:
These criteria include circumstances where a pensioner has a psychiatric disorder or a mental illness as a result of alcohol or drug addiction.
A trustee can be appointed, with or without the consent of the pensioner and once appointed, a trustee has full control of the pension payment.
(ii) a person responsible for administration of a trust
According to section 52ZO of the VEA [19], trustee has the same meaning as in the Income Tax Assessment Act 1997 [36].
The principal home has the meaning given by subsection 5LA(1) [19] of the VEA and subsection 5LA(2) [19] 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.
According to Section 5E(2) [20]of the VEA [20]a person is a member of a couple, if they are:
The term “partnered” is also commonly used.
An entity means any of the following:
an individual,
a company,
a trust,
a business partnership,
a corporation sole,
a body politic.
Control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights.
Curtilage is the land adjacent to the exempt principal home [2]. A certain amount of curtilage is disregarded for the assets test. [2]. The amount of curtilage that is exempt depends on whether the private land use test [2] described in section 5LA(3) of the VEA, or the extended land use test [2] 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 [2] under the assets test [2]. Examples of exempt assets include:
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:
A person is a homeowner if they have a right or interest, which gives reasonable security of tenure in the principal home.
Refer to sections 52Q and 52R of VEA for the definition when determining if a person is a considered to be a homeowner when living in a special residence.
A person is also considered to be a homeowner if they have sold their home in the previous 12 months and intend to use part or all of the proceeds to purchase another home.
According to subsection 5MC(2) of the VEA [19] a special residence is:
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16327%23comment-form
[2] https://clik.dva.gov.au/%23
[3] https://clik.dva.gov.au/user/login?destination=node/16494%23comment-form
[4] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn457
[5] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn458
[6] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn459
[7] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn460
[8] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/1038-other-trust-matters-01012002/discretionary-trust-rural-succession-trust-and-fixed-unit-trust
[9] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/10310-liabilities-private-trust-or-company-01012002/non-recognised-liabilities-controlled-private-company-or-trust
[10] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/10310-liabilities-private-trust-or-company-01012002/recognised-liabilities-controlled-private-company-or-trust
[11] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn457
[12] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[13] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn458
[14] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/102-assets/1022-determining-value-asset
[15] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/10311-assessment-capital-injection-private-trust-or-company-01012002/capital-injection-return-equity-private-trust-or-company
[16] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn459
[17] https://clik.dva.gov.au/compensation-and-support-policy-library/part-11-administration-payments/111-income-support-effective-dates-and-pension-periods/1114-determining-effective-dates-variations-and-terminations/date-effect-annual-reviews
[18] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn460
[19] http://clik.dva.gov.au/legislation-library
[20] http://www.comlaw.gov.au/Series/C2004A03268
[21] https://clik.dva.gov.au/user/login?destination=node/16333%23comment-form
[22] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn461
[23] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn461
[24] https://clik.dva.gov.au/user/login?destination=node/16540%23comment-form
[25] https://clik.dva.gov.au/user/login?destination=node/16379%23comment-form
[26] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn462
[27] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn463
[28] https://clik.dva.gov.au/book/export/html/16327#tgt-cspol_part10_ftn464
[29] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/1039-assessing-assets-private-trust-or-company-01012002/security-tenure-home-owned-private-company-or-trust
[30] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn462
[31] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/102-assets/1023-disregarded-assets
[32] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/10312-assessing-income-distributions-private-trust-or-company-01012002
[33] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn463
[34] https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/92-residential-situation/925-special-residence-assessment-rules
[35] https://clik.dva.gov.au/book/export/html/16327#ref-cspol_part10_ftn464
[36] http://www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200401745?OpenDocument