4.12.2.20 Derivation & Attribution Periods

Date of effect

This topic has effect in relation to controlled private trusts and controlled private companies from 1 January 2002.

In this topic

This topic contains information on the following:

  • what constitutes a derivation period, and
  • what constitutes an attribution period.

Summary

When deciding for which period of time to attribute the assets and income of a trust or company to an individual, the assessor first needs to establish the derivation period, and the attribution period to which the derivation period relates.

Derivation periods

A derivation period generally refers to a tax year and can be of any length up to a 12-month period. Generally, each tax year that a trust or company is in existence will be a derivation period for the trust or company. If a trust or company has only been in existence for a part of a tax year, that part of the tax year will generally be a derivation period for that trust or company. In most circumstances, a derivation period will be the last financial year for which the tax return is available.

With reference to a derivation period, the ordinary income generated by a trust or company in a derivation period is used to determine the amount of income to attribute to an attributable stakeholder of that trust or company.

Example: On 31 January 2008, the assessment will be based on the derivation period 1 July 2006 to 30 June 2007, if that is the most recent period for which a tax return is available.

However, if the delegate is of the view that it is appropriate, in a particular case, to use a derivation period, other than a tax year, that may reasonably be regarded as a typical earning period for that trust or company, then that period may be used as the derivation period. In situations when a reassessment of an income support recipient's circumstances is sought, the derivation period may be the preceding 3 months, if that gives a more accurate reflection of the attributable stakeholder's income than the previous financial year.

In making such a determination, the delegate must have regard to the factors set out in the Social Security (Attribution of Income) Principles 2017.

Example: If an entity in business received a new and more profitable contract on 1 November 2006, it would be open to the delegate to decide that the period 1 November 2006 to 30 June 2007 (rather than the full tax year of 1 July 2006 to 30 June 2007) is a derivation period for a trust or company, if that period can reasonably be regarded as a typical earning period of that trust or company.

Act reference: SSAct section 8(1)-'income', section 23(1) Dictionary

Attribution periods

An attribution period is the period for which ordinary income is to be attributed to an attributable stakeholder. An attribution period MUST relate to a derivation period, which may or may not overlap.

An attribution period can be shorter or longer than the derivation period to which it relates. An attribution period would generally be a period of 12 months and start at the earliest possible time after the tax return in regard to the most current tax year is available. However, in some situations an attribution period could be determined by the delegate to be a period less than 12 months, for example, where an income support recipient requests a reassessment of his/her circumstances.

An attribution period must end when the specified period expires or when the person ceases to be an attributable stakeholder, whichever is the earlier.

In determining an attribution period, the delegate must have regard to the factors set out in the Social Security (Attribution of Income) Principles 2017.

Example 1: For the tax year (standard derivation period) of 1 July 2004 to 30 June 2005, the tax return for a trust is signed by the income support recipient (an attributable stakeholder of the trust) on 31 January 2006. The recipient provides a copy of the tax return with financial statements to Centrelink on 12 February 2006. It would be open to the delegate to decide that the ordinary income generated by the trust in the derivation period 1 July 2004 to 30 June 2005 should be attributed to the recipient for an attribution period that commences on 12 February 2006 and ends on 12 February 2007.

(The start date of the attribution period, as determined by the delegate, is the date on which Centrelink was advised of the new income details. The end date of the attribution period, 12 February 2007, as determined by the delegate, represents the date on which the tax return with financial statements for the next tax year 1 July 2005 to 30 June 2006 is likely to be provided by the attributable stakeholder.)

Example 2: For the tax year (standard derivation period) of 1 July 2006 to 30 June 2007, the tax return for a company is signed by the income support recipient (an attributable stakeholder of the company) on 31 January 2008. The recipient provides a copy of the tax return with financial statements to Centrelink on 15 May 2008. It would be open to the delegate to decide that the ordinary income generated by the company in the derivation period 1 July 2006 to 30 June 2007 should be attributed to the recipient for an attribution period that commences on 31 January 2008 and ends on 31 January 2009.

(The start date of the attribution period, as determined by the delegate, is the date on which the new income details became known to the recipient. The end date of the attribution period, 31 January 2009, as determined by the delegate, represents the date on which the tax return with financial statements for the next tax year, 1 July 2007 to 30 June 2008, is likely to be available.)

In example 2, it is possible that the recipient may have been overpaid in the period 31 January 2008 to 15 May 2008.

Act reference: SSAct section 1208C Derivation periods, section 1208D Attribution periods, section 23(1)-'tax year', section 1207X Attributable stakeholder, asset attribution percentage and income attribution percentage

Policy reference: SS Guide 4.12.2.10 Attribution Percentages, 4.12.8.10 Reassessments of a Controlled Private Trust or Controlled Private Company

Last reviewed: 20 September 2017