A person will be considered to be a genuine investor [2] where they provide capital to an entity [2] in return for equity. Where a person is considered to be a genuine investor in an entity they will be ascribed the historical value [2] of the injection of capital. See below for further information on the treatment of injections of capital to fixed unit private trusts and private companies.
A genuine injection of capital will have occurred when all of the following occur:
The person who genuinely injected capital will have the historical value [2] of the injection of capital assessed against them. If the injection of capital is genuine, it will not be regarded as income of the attributable stakeholder [2](s). The amount of the injection will be included in the entity's assets. However, the entity's assets will also be reduced by the historical value of the injection. Reasonable dividend payments can also be made to the person who injected the capital and will not be treated as income or as a gift of the attributable stakeholder/s. Such dividends will be treated as income of the genuine investor [2] for 12 months from the date of distribution.
More ? [3]
Assessing the historical value of the injection of capital assessed against the person who genuinely injected the capital is subject to two conditions:
Limiting the amount to the historical value reflects the actual contribution, while recognising the reality that a non-attributable stakeholder relies entirely on the goodwill of the attributable stakeholder as:
A genuine injection of capital in return for equity in a private trust can only occur where the trust is a fixed trust, and the person obtains units [2] in return for the injection of capital. The value of the units (using the net asset backing method [2]) will be treated as an asset of the person who injected the capital. However if the injection of capital occurs after 7.30pm 9 May 2000, the guidelines regarding the assessment of fixed trusts should be examined to ensure whether, under the source test [2], the assets and income of the trust should be attributed via the normal attribution rules.
More ? [4]
Note that it is not possible to obtain equity in a discretionary trust.
An individual will be treated as a genuine investor in a private company where:
A genuine injection of capital in return for equity in a private trust can only occur where the trust is a fixed trust, and the person obtains units [2] in return for the injection of capital. Genuine investors have the historical value of the injected equity capital assessed as their asset.
An entity means any of the following:
an individual,
a company,
a trust,
a business partnership,
a corporation sole,
a body politic.
Historical value in relation to a trust or company means the original amount of capital invested by a stakeholder in the entity at a particular time or over a period of time.
According to section 52ZZJ of the VEA [9], 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.
Historical value in relation to a trust or company means the original amount of capital invested by a stakeholder in the entity at a particular time or over a period of time.
According to section 52ZZJ of the VEA [9], 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.
An individual will be treated as a genuine investor in a private company where:
A genuine injection of capital in return for equity in a private trust can only occur where the trust is a fixed trust, and the person obtains units [2] in return for the injection of capital. Genuine investors have the historical value of the injected equity capital assessed as their asset.
Units in relation to a trust, include a beneficial interest, however described, in the property or income of the trust.
The net asset backing method provides the least complex and consistent basis for assessing the value of private companies. The method values the shares in a private company by calculating the:
The calculation is based upon information in the company balance sheet and depreciation schedule taking into consideration the current market value rather than the historical value as may appear in the balance sheet.
An individual passes the source test in relation to a trust or company if:
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16519%23comment-form
[2] https://clik.dva.gov.au/%23
[3] https://clik.dva.gov.au/book/export/html/16519#tgt-cspol_part10_ftn476
[4] https://clik.dva.gov.au/book/export/html/16519#tgt-cspol_part10_ftn477
[5] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/101-ordinary-income/1011-overview-ordinary-income
[6] https://clik.dva.gov.au/book/export/html/16519#ref-cspol_part10_ftn476
[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/book/export/html/16519#ref-cspol_part10_ftn477
[9] http://clik.dva.gov.au/legislation-library