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.
More ? [3]
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 ? [4]
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.
More ? [5]
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.
More ? [6]
10.3.8/Discretionary Trust, Rural Succession Trust, and Fixed Unit Trust [7]
10.3.10/Non-recognised Liabilities of a Controlled Private Company or Trust [8]
10.3.10/Recognised Liabilities of a Controlled Private Company or Trust [9]
Attribution of assets
Section 52ZZR [11] VEA
When attributable asset is unrealisable
Section 52ZZS [11] VEA
Determining the Value of an Asset
Section 10.2.2 [13]
10.3.11/Capital Injection in return for Equity in a Private Trust or Company [14]
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) [18] 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 [19].
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 [18], 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.
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16494%23comment-form
[2] https://clik.dva.gov.au/%23
[3] https://clik.dva.gov.au/book/export/html/16494#tgt-cspol_part10_ftn457
[4] https://clik.dva.gov.au/book/export/html/16494#tgt-cspol_part10_ftn458
[5] https://clik.dva.gov.au/book/export/html/16494#tgt-cspol_part10_ftn459
[6] https://clik.dva.gov.au/book/export/html/16494#tgt-cspol_part10_ftn460
[7] 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
[8] 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
[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/recognised-liabilities-controlled-private-company-or-trust
[10] https://clik.dva.gov.au/book/export/html/16494#ref-cspol_part10_ftn457
[11] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[12] https://clik.dva.gov.au/book/export/html/16494#ref-cspol_part10_ftn458
[13] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/102-assets/1022-determining-value-asset
[14] 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
[15] https://clik.dva.gov.au/book/export/html/16494#ref-cspol_part10_ftn459
[16] 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
[17] https://clik.dva.gov.au/book/export/html/16494#ref-cspol_part10_ftn460
[18] http://clik.dva.gov.au/legislation-library
[19] http://www.comlaw.gov.au/Series/C2004A03268