This section contains information on the assessment and treatment of capital injections to controlled private trusts [2] and controlled private companies [2].
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:
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.
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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.
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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 [10], 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 [10], 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:
If a sole attributable stakeholder [2], or members of a couple [2] who are the only attributable stakeholders, make a capital injection into a structure in the form of a gift, that gift will not be subject to the disposal or deprivation provisions [2] but must be included in the value of the structure. This is because a sole attributable stakeholder, or members of a couple who are the only attributable stakeholders, cannot gift to themselves.
If there are multiple attributable stakeholders and one of those stakeholders makes a capital injection to a structure in the form of a gift, the gift will be included in the value of the structure and attributed to the attributable stakeholders in accordance with their assessed attribution percentage. The attributable stakeholder who made the gift will be subject to the deprivation provisions [2] of the Act, in regard to the amount of the gift attributed to the other (attributable) stakeholders.
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John and Jim are the attributable stakeholders of a private company, with an attribution percentage of 50% each. John gifts $30,000 to the company. Fifty percent ($15,000) of the gift is subject to the disposal rules which results in an amount of $5,000 held against John as a deprived asset for 5 years from the date of the gift.
If the gift is from a third party (that is, a person who is not an attributable stakeholder [2] of the trust or company), the amount of the gift will be added to the value of the entity [2]. The third party making the gift would be subject to the deprivation provisions [2], if that third party is or becomes an income support recipient.
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According to section 52ZZJ of the VEA [10], 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.
According to Section 5E(2) [18]of the VEA [18]a person is a member of a couple, if they are:
The term “partnered” is also commonly used.
According to section 52ZZJ of the VEA [10], 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 entity means any of the following:
an individual,
a company,
a trust,
a business partnership,
a corporation sole,
a body politic.
If a veteran who would like to:
after 1 January 2002, the deprivation rules do not apply. The house would be an asset of the trust unless the veteran can reasonably establish security of tenure. If the trust subsequently disposes of trust units [2] to a non-attributable stakeholder, a disposal of assets would have occurred subject to allowable gifting limits and security of tenure may need to be re-examined.
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Units in relation to a trust, include a beneficial interest, however described, in the property or income of the trust.
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16520%23comment-form
[2] https://clik.dva.gov.au/%23
[3] https://clik.dva.gov.au/user/login?destination=node/16519%23comment-form
[4] https://clik.dva.gov.au/book/export/html/16520#tgt-cspol_part10_ftn476
[5] https://clik.dva.gov.au/book/export/html/16520#tgt-cspol_part10_ftn477
[6] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/101-ordinary-income/1011-overview-ordinary-income
[7] https://clik.dva.gov.au/book/export/html/16520#ref-cspol_part10_ftn476
[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/book/export/html/16520#ref-cspol_part10_ftn477
[10] http://clik.dva.gov.au/legislation-library
[11] https://clik.dva.gov.au/user/login?destination=node/16323%23comment-form
[12] https://clik.dva.gov.au/book/export/html/16520#tgt-cspol_part10_ftn478
[13] https://clik.dva.gov.au/book/export/html/16520#tgt-cspol_part10_ftn479
[14] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/1037-attribution-percentage-derivation-and-attribution-period-01012002/attribution-percentage
[15] https://clik.dva.gov.au/book/export/html/16520#ref-cspol_part10_ftn478
[16] https://clik.dva.gov.au/compensation-and-support-policy-library/part-10-types-income-and-assets/103-business-structures-and-trusts/1036-attribution-guidelines-private-trusts-private-companies-01012002/source-test
[17] https://clik.dva.gov.au/book/export/html/16520#ref-cspol_part10_ftn479
[18] http://www.comlaw.gov.au/Series/C2004A03268
[19] https://clik.dva.gov.au/user/login?destination=node/16497%23comment-form
[20] https://clik.dva.gov.au/book/export/html/16520#tgt-cspol_part10_ftn480
[21] 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
[22] https://clik.dva.gov.au/book/export/html/16520#ref-cspol_part10_ftn480