188.8.131.52 Aggregation Assessments of Controlled Primary Production Private Trusts & Private Companies
Date of effect
This topic has effect to controlled private trusts and controlled private companies from 1 January 2002.
In this topic
This topic provides information on aggregation assessment for primary producers (1.1.P.389) who are attributable stakeholders of a:
- controlled private company, or
- controlled private trust.
Act reference: SSAct section 1207Q Controlled private companies, section 1207V Controlled private trusts, section 1207X Attributable stakeholder, assets attribution…
If an income support recipient is an attributable stakeholder of a controlled private trust or controlled private company and the main business activity undertaken by the trust or company is primary production, the aggregation rules of SSAct section 1121A are to apply. That is the value of ALL the stakeholder's primary production liabilities can be offset against their primary production assets. This includes primary production assets PERSONALLY owned by the stakeholder. The stakeholder's principal home and adjacent land (1.1.A.58) is an exempt asset and is not used in the aggregation assessment, even if that home is on the primary production land.
Example: Jim is a 50% attributable stakeholder of a private family trust. His child Tom is also a 50% stakeholder. The trust is part of a primary production enterprise. Jim holds the title to the primary production land in his own name. The trust owns the plant, equipment and stock, and carries the liabilities of the enterprise. Jim's primary production assets and liabilities include the primary production land he personally owns (minus his principal home and adjacent land) and his share of the trust primary production assets and liabilities.
Act reference: SSAct section 11A(1) Principle home
Primary production liabilities
A primary production liability is any liability the attributable stakeholder has, that has been obtained for the purpose of running a primary production business. The assessor should have care when determining the attributable stakeholder's primary production liabilities as non-primary production assets and liabilities or exempt assets (1.1.E.170) are not considered to be an asset or liability for aggregation purposes. If a liability is held over both a primary production and non-primary production or exempt asset the liability must be apportioned to determine the primary production liability for the stakeholder.
Explanation: Where a liability is held over a property that includes the stakeholder's principal home the liability must be apportioned to determine the amount that can be used to offset any primary production assets for aggregation purposes. This is because the home and adjacent land are not primary production assets for the homeowner. An encumbrance held over a primary production asset for a third party also cannot be used to offset the value of that asset, as the liability is the third party's.
Example: George is a primary producer. He secures a mortgage over a portion of his primary production land. The purpose of the mortgage is to secure a loan for his child who wishes to buy a holiday home. The mortgage cannot be used to offset the primary production assets for aggregation purposes, as the LIABILITY is the child's, and the purpose of the loan is not primary production.
If the primary production assets include the principal residence (and adjacent land) of the stakeholder, and/or a liability is secured over the assets (regardless of whether the primary production assets are entity or personal assets), then the assets and liabilities must be apportioned to determine the net primary production asset amount for the attributable stakeholder.
Note: For further information about apportionment see 184.108.40.206 Apportioning a Liability of a Controlled Private Company or Controlled Private Trust.
Aggregation & multiple primary production entities
If an income support recipient is an attributable stakeholder of multiple entities that have primary production assets and liabilities, then ALL the primary production assets and liabilities of those entities are brought into account when determining the stakeholder's aggregation assessment. (Subject to the attribution percentage the stakeholder has in the entities.)
Explanation: This means that assets and liabilities from one primary production business may be aggregated with other primary production assets and liabilities owned or attributed to the stakeholder.
Example: Chris and Alex have 2 separate primary production enterprises, crop farming and oyster farming. They are active in both enterprises and have each been assessed as attributable stakeholders for both primary production enterprises. There are no non-primary production assets or liabilities in either business, therefore all the assets and liabilities of the 2 primary production enterprises can be aggregated.
The crop farming primary production business recorded total business assets of $100,000. Chris and Alex have each been assessed with a 50% interest in this business and thus have each been attributed with $50,000.
The separate oyster farming primary production enterprise only commenced 2 years ago and while Chris and Alex are working to make it profitable the interest on the bank loans, depreciation on the plant and equipment and low income in the first years of operation have meant that total business liabilities exceed total business assets by $60,000. Chris and Alex have been assessed as having a 60% and 40% interest respectively in the oyster farming business. Therefore Chris and Alex's attributable assets from this business are in deficit by $36,000 and $24,000 respectively.
The oyster farming business deficit can be subtracted from the asset amounts attributed to Chris and Alex from the crop farming business. Therefore the resulting attributable assets would be $14,000 ($50,000 - $36,000) for Chris and $26,000 ($50,000 - $24,000) for Alex.
Act reference: SSAct section 1121A Effect of certain liabilities on value of assets used in primary production, section 1208G Effect of charge or encumbrance on value of assets, section 1208H Effect of unsecured loan on value of assets, section 1208J Value of company's or trust's assets etc.
Policy reference: SS Guide 220.127.116.11 Apportioning a Liability of a Controlled Private Company or Controlled Private Trust, 4.12.5 Liabilities of a Controlled Private Trust & Controlled Private Company, 18.104.22.168 General provisions for exempt assets