4.7.1.40 Assessment of Assets for Sole Traders

Summary

This topic provides information on the following items for sole traders (1.1.S.225):

  • assessable assets (1.1.A.290),
  • verification of asset value,
  • valuation of real estate, and
  • summary of assessable assets for pensions and allowances.

Policy reference: SS Guide 4.7.1.50 Assessment of Assets for Partnerships

Assessable assets

The value of the net assets of a business run by a sole trader are assessable if the owner or their partner is a pension or allowance income support recipient.

The amount to be taken into account for asset test purposes is the current market value (1.1.M.40) of the assets, LESS the 'business' liabilities listed on the financial statements.

If the income support recipient is involved in primary production activities, 'aggregation' rules MAY apply, and these are described in the referenced topic.

Act reference: SSAct section 1121 Effect of charge or encumbrance on value of assets, section 1121A Effect of certain liabilities on value of assets used in primary production, section 547D Value of person's assets to include value of assets of partner or family members in certain circumstances, section 547G How business assets are treated

Policy reference: SS Guide 4.7.4.20 Primary Production Aggregation Assessment for Sole Traders & Partnerships

Verification of asset value

Each item on the balance sheet MUST be individually examined and a judgement made about whether the asset value recorded is reasonable. In most cases, the asset value recorded on the balance sheet is accepted, particularly for assets such as:

  • bank accounts,
  • petty cash,
  • pre-paid expenses,
  • debts owing, and
  • plant and equipment.

However, if necessary, the balance sheet must be adjusted and the value of assets owned by the business reassessed to reflect current market value.

Explanation: Using conventional accounting methods, fixed assets are recorded at historical cost, usually the purchase price less depreciation.

Valuation of real estate

The following table describes the requirements for valuation of real estate belonging to a sole trader.

If the real estate… Then…
is recorded on the balance sheet, a professionally qualified valuer's valuation of the property MAY be necessary.
is a farm, a professionally qualified valuer's valuation of livestock, plant and equipment MAY be necessary, in addition to a property valuation.
includes the income support recipient's principal home and adjacent land (1.1.A.58),

the assessable value of the real estate is the value of the land exceeding any exempt adjacent land (1.1.A.58).

Note: The assessable value also includes anything within the adjacent land that is not principally used for private or domestic purposes.

is a room in the income support recipient's principal home, the assessable value is the value of the room/s used for conducting the business.

Policy reference: SS Guide 4.7.4 Assessing the Income & Assets from Primary Production, 4.6.5.30 Assessing Property, Real Estate & Unit Trusts

Summary table - assessable assets for pensions & allowances

The following table summarises the assessable assets from a sole trader business for pension and allowance income support recipients.

Asset Treatment
Principal home Remove it from the balance sheet along with any associated liability, after apportioning where necessary.
Portion of home used exclusively for business purposes Include it as part of the assessable asset value of the business.
Petty cash and financial investments used as part of the ongoing operations of the business listed as business assets Treat them as the assets of the business and include them when calculating the overall value of the business.
Financial investments not used as part of the operations of the business Assess them as personal financial assets of the income support recipient. Take them out of the business financial statements.
Goodwill Include it when valuing a business. Use the value shown in the balance sheet. Reassess the value if the income support recipient provides evidence of a different value.
Business assets Assess the current market value (1.1.M.40) of business assets, less 'business' liabilities, under SSAct section 1121.
Loans to the business by the income support recipient where the income support recipient is the sole trader Treat as an injection of capital in the business. Add them back to the net assets of the business if listed as a liability on the balance sheet. Not treated as a loan for the income support recipient.
Loans to the business by persons other than the owner

Take them into account as liabilities when calculating the assessable value of the business.

Additionally assess them as financial investments of the lender if the lender is a Centrelink income support recipient.

Loans by the business to the owner Include them as an asset when calculating the overall value of the business.
Loans by the business to persons other than the owner Assess them as the personal financial investments of the owner. Take them out of the business financial statements.
Non-business assessable assets providing security for business liabilities where the business has a net deficiency Deduct the amount of the deficiency from the value of the assessable assets.
Farm Management Deposits (this scheme, launched on 2 March 1999, replaces the Income Equalisation Deposits and Farm Management Bonds schemes) Take them out of the business financial statements. Deeming applies. Disregard the actual income earned. No deduction is allowed for investment expenses.
Provision Account Add the value back into the net assets of the business.

Act reference: SSAct section 1121 Effect of charge or encumbrance on value of assets, section 1121A Effect of certain liabilities on value of assets used in primary production, section 1122 Loans

Last reviewed: 4 January 2016