6.1.2.55 Reviews - Business - Private Trusts & Private Companies

Summary

This topic deals with reviews of private trusts and private companies from 1 January 2002.

This topic covers:

  • delegation,
  • initial assessment,
  • annual reviews,
  • estimate or discretion review,
  • review of attribution percentages,
  • reassessment, and
  • primary production.

Policy reference: SS Guide 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002, 4.7.2 Assessing the Income & Assets from Private Companies pre-01/01/2002, 4.7.3 Assessing the Income & Assets from Trusts pre-01/01/2002

Delegation

Only a CAO has the delegation to review attribution percentages, for example where there has been a structural change or change to those involved in the private trust or company. Other Centrelink assessors may undertake reviews of private trusts and companies, if the review involves only an update of assets and/or income.

Initial assessment

The means test treatment of private trusts and companies is explained in Chapter 4.12, which contains information about the attribution to individuals of the assets and income of private trusts and private companies from 1 January 2002. It provides detailed information on the attribution process and describes issues around deprivation of income and assets, the treatment of income from different sources and the treatment of various types of assets.

Annual reviews

Reviews of private trusts and companies are based on tax returns and financial statements. The initial annual review is manually recorded to coincide with the time the trust or company tax return is normally lodged with the ATO. Subsequent annual reviews are generated automatically by the system at this time each year.

The purpose of the annual review is to:

  • update the assessment of the entity assets and income for attribution,
  • update the assets and income maintained for income support recipients in respect of their involvement in the company or trust, and
  • determine if the attribution percentages still reflect the current circumstances of the company or trust.

A review of the assets and income of the company may involve a professionally qualified valuer's valuation of company or trust held assets including the home of the income support recipient.

A request for the current financial statements of the trust or company is sent out automatically. Income support recipients are requested to provide copies of all relevant documents at the appropriate time. If the documentation is not supplied, payment stops.

The table below shows contact for reviews and failure to respond processes.

Action Method
First phase A request for financial statements is automatically issued to the nominated contact person for the trust or company. The contact person is asked to supply the statements within 28 days.
Second phase If the first phase letter is not responded to within 35 days, a second request is sent to the nominated contact person. The contact person is again asked to supply the statements within 28 days. The controller/s and any current Centrelink income support recipients linked to the trust or company are also sent a letter stating that a review is in progress, that the initial request was not responded to by the nominated contact person and that a further request has been sent to the nominated contact person, who has 28 days to reply.
Third phase A reminder letter is issued to the controller/s and to any income support recipients linked to the trust or company if no response is received within a further 35 days. This letter advises that income support recipient payments may be suspended if there is no reply within 28 days and will remain suspended until the review is complete.
Suspension If no response is received within a final 35 days the income support recipient's payments/concessions are suspended and an advice sent. For income support recipients in residential care a manual follow-up is created.
Cancellation A cancellation review is set for 13 weeks after suspension.

Policy reference: SS Guide 4.12.8.10 Reassessments of a Controlled Private Trust or Controlled Private Company

Estimate or discretion review

Where an estimate is used to determine the income support recipient's assessable income (as shown in 4.12.8.10), or the CAO has exercised any form of discretion or made a determination contingent on certain circumstances, a review should be set for no more than 6 months from the date of assessment.

Review of attribution percentages

Only a CAO has the delegation to conduct a review where there is a structural change and a review of attribution percentages is required.

The table below lists examples of changes that may require a review of attribution percentages for a private trust.

Area of Change Change to Trust
Appointer/trustee
  • an appointer or a trustee resigned, retired or died,
  • a new appointer or trustee was appointed,
  • the appointer or trustee's powers were altered.
Units
  • additional units were issued by the trust (even if they were issued to a non-income support recipient),
  • existing units changed hands (whether held by an income support recipient or not),
  • the rights or interests of existing units were altered (whether held by an income support recipient or not).
Gifts/loans
  • gifts were made to the trust (whether by an income support recipient or not),
  • non-arms length loans were made to the trust (whether by an income support recipient or not),
  • the beneficiary loan account balances altered.
Attributable stakeholder
  • an attributable stakeholder moved into, or moved out of, trust held property,
  • other changes, eg evidence that effective control and decision making powers have changed.

A full list of the factors to be considered when making an attribution decision is contained in the Disallowable Instrument Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017.

The table below lists examples of changes that may require a review of attribution percentages for a private company.

Area of Change Change to Company
Director
  • a director resigned, became bankrupt, retired or died,
  • a new director was appointed,
  • the director's powers were altered.
Shares
  • additional shares were issued by the company (even if they were issued to a non-income support recipient),
  • existing shares changed hands (whether held by an income support recipient or not),
  • the rights or interests of existing shares were altered (whether held by an income support recipient or not).
Gifts/loans
  • gifts were made to the company (whether by an income support recipient or not),
  • non-arms length loans were made to the company (whether by an income support recipient or not),
  • the shareholder loan account balances altered.
Attributable stakeholder
  • an attributable stakeholder moved into, or out of, company held property,
  • other changes, e.g. evidence that effective control and decision making powers have changed.

A full list of the factors to be considered when making an attribution decision is contained in the Disallowable Instrument Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017.

Reassessment

If the assets and/or income of the structure change, income support recipients may seek a review of assessments on the basis of a current and full set of financial statements and revised estimates of income. Circumstances that may warrant a reassessment of the assets and income of the entity at a time other than the annual review are discussed at 4.12.8.10.

Attributable stakeholders are entitled to request not only a review of their own circumstances but also a reassessment of the assets and income of the private company at any time. Income support recipients who request a review of an entity's assessment must show just cause as to why this should occur. Where attribution percentages are being reviewed, income support recipients are asked to demonstrate why attribution should not apply, or why it should be reduced.

Reassessments are to be completed by a CAO. It is important to consider that the result of the reassessment will impact on all attributable stakeholders.

If the assets and income of the company are altered at a time other than the annual review, the CAO will determine the frequency of subsequent reviews until the company is returned to the annual review cycle. The reviews following an income support recipient's request for a reassessment of the company assets and income should not exceed 6 months. The CAO will determine when it is appropriate for the company.

Policy reference: SS Guide 4.12.8.10 Reassessments of a Controlled Private Trust or Controlled Private Company

Primary production

Information in this topic also applies to reviews of primary producers with income and assets held in private trust arrangements or private company structures.

Chapter 4.12 contains information on the treatment of primary production assets that are held in private trusts and private companies and information on concessional primary production trusts.

Policy reference: SS Guide 4.7 Business Structures, Primary Production & pre-01/01/2002 Assessment of Trusts & Private Companies

Last reviewed: 20 September 2017