220.127.116.11 Reassessments of a Controlled Private Trust or Controlled Private Company
Date of effect
This topic has effect to controlled private trusts and controlled private companies from 1 January 2002.
This topic contains information on the following:
- reassessment periods and when it is acceptable for an income support recipient, who is an attributable stakeholder of a controlled entity, to request a reassessment of their circumstances, and
- who has the delegation to complete the reassessment and the types of documentation required during the assessment period?
Generally the assets and income of a controlled private trust or controlled private company are assessed on an annual basis from the most recent tax return. However, income support recipients who are attributable stakeholders of a controlled private trust or controlled private company may request a reassessment of their circumstances at any time. The reassessment period then becomes the attribution period that must have reference to the applicable derivation period.
Example: An income support recipient is the sole attributable stakeholder of a private company. The recipient has been on an annual assessment cycle for 2 years but has requested a reassessment of their circumstances due to a severe downturn in business turnover. The recipient provides all relevant documentation and the assessing officer (the CAO) decides to put the recipient on a 3 monthly reassessment cycle. The recipient's attribution period becomes the period of reassessment (3 months) and their derivation period is the current tax year (1.1.T.10).
Note 1: SSAct section 1207Z permits assessors to reduce a controlling income support recipient's distribution income where that recipient's attribution income is also reduced following a reassessment.
Note 2: A reassessment may also apply to the income support recipient's partner (where the recipient is a member of a couple), even if that partner is not a controller of the entity but has received distributions or dividends from the entity.
Act reference: SSAct section 1208C Derivation periods, section 1208D Attribution periods, section 23(1)-'tax year'
Only a CAO has the delegation to undertake reassessments. If the delegate is satisfied that the previous financial statements do not represent a reasonable indication of the likely current rate of income to be earned by the income support recipient from the entity, a reassessment may be undertaken.
Possible cause for reassessments
When an income support recipient requests a reassessment of an entity's circumstances they must show just cause as to why this should occur. The following outlines a number of circumstances that may warrant a reassessment. However, this is NOT a definitive list. Each case will need to be examined on its merits.
Some of the circumstances that may warrant a reassessment are:
- a change in business operations conducted by the entity (see example 1),
- a change in the circumstances affecting a business operating in the industry or in the same geographical location (see example 2),
- a change to government regulations, policy or taxes which affect the business,
- a change in the overall economic climate,
- cessation of the business,
- commencement of a new business,
- business activities are not currently being conducted due to illness,
- amended TNA, or
- withdrawal from a business.
Example 1: Could include:
- completion or expiry of a contract,
- loss of a contract,
- a major restructure of the business,
- sale of a business or part of the business operations,
- restructure of the financial position of the business, or
- re-finance or extension of the business liabilities.
Example 2: Could include:
- drought, flood,
- significant change in commodity prices, e.g. wool sales, or
- significant change in the price of raw materials, stock or other imports utilised by the business, e.g. minerals.
Documentation - income support recipient requirements
The income support recipient must supply appropriate documentation to enable a reassessment. It is their responsibility to keep current financial records of the entities they control. The documentation they may supply can include but is NOT restricted to:
- year to date financial statements (year to date means current financial year),
- previous years' tax returns, to help establish a trend or assist in quantifying the impact of a change in circumstances,
- estimates of expected earnings for the reassessment period, or
- documentary evidence of an event that has lead to the reassessment request.
The income support recipient is also required to supply current financial records at the end of each reassessment cycle. Where a person has difficulty in providing this information, it is appropriate that they seek assistance from their accountant.
Note: Possible legal ramifications preclude Centrelink staff from assisting income support recipients in compiling the financial statements.
The income support recipient must supply an estimate of their expected earnings for the reassessment period. This estimate is to be used in the calculation of entitlements, and at the end of each cycle the estimate will be reviewed and, if required, a new estimate will be assessed.
The length of the reassessment cycle is to be set by consultation between the CAO and income support recipient. Reassessment intervals are not to exceed 6 months.
Once the reassessment cycle has commenced a review of the recipient's circumstances by a CAO must be undertaken at regular intervals, with a full review of the recipient's circumstances being undertaken at intervals not exceeding 12 months.
The review will comprise either:
- a full review where an income support recipient supplies full financial statements and estimates, or
- a file review where a CAO contacts the income support recipient and establishes that the current estimate should continue. File reviews will only be conducted in cases of extreme localised circumstances such as drought.
Local factors may require a downward variation in the frequency of reassessments. This is to be determined by the assessing officer.
Note: The assessment period of an income support recipient should be returned to an annual assessment based on tax returns as soon as the delegate is satisfied that tax records can provide an accurate reflection of the recipient's income.
If a reassessment is undertaken, any reassessment will apply to all attributed stakeholders.
Example: An entity has 3 attributable stakeholders, X, Y and Z. All the stakeholders are in receipt of an income support payment. Stakeholder X requests a reassessment that results in a decrease in the amount of attributed income for the entity. The decrease in entity income affects ALL the stakeholders regardless of who originally requested the reassessment.