4.12.5.20 Apportioning a Liability of a Controlled Private Company or Controlled Private Trust
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 the following:
- apportioning a loan or encumbrance, and
- apportionment and multiple attributable stakeholders.
Apportioning a loan or encumbrance
If there is a recognised liability (4.12.5.10) secured against more than one asset (1.1.A.290) of an entity, the value of the liability is shared between the assets in proportion to the respective values of the assets. Generally a liability will be secured against an asset such as real estate.
Explanation: The liability reduces the value of the assessable asset/s proportionally, according to the value of the asset/s.
Example: The total assets of an entity are $500,000. The sole attributable stakeholder's principal home, worth $100,000, is part of the entity assets. The entity has a recognised liability of $200,000 secured against all its assets. The net asset attribution amount for the attributable stakeholder is calculated as follows:
| Total entity assets | $500,000 |
|---|---|
| Less value of principal home | $400,000 ($500,000 − $100,000) |
| Assessable assets as a % of total entity assets | 80% ($400,000 ÷ $500,000) |
| Total liability | $200,000 |
| Amount of assessable liability | $160,000 ($200,000 × 80%) |
| Attribution % | 100% |
| Net attributable asset amount |
$240,000 ($500,000 − ($100,000 + $160,000)) |
Recognised unsecured loans can also be apportioned at the delegate's discretion. However where an unsecured loan exists along with exempt assets in an entity, the assessor may need to make enquiries as to how the unsecured loan has come about before making a decision with respect to apportionment. An unsecured loan that can be demonstrated to have come about solely to purchase assessable assets of the entity could be deducted from those assessable assets and apportionment would not arise. Conversely if an income support recipient transferred their principal residence into an entity and received an unsecured loan (or an increase in an already existing unsecured loan) from the entity in return, none of that unsecured loan (or increase in the unsecured loan, as the case may be) should be allowed as a deduction from the assessable assets of the entity for that income support recipient.
Act reference: SSAct section 11A(1) Principal home
Apportionment & multiple attributable stakeholders
If there are multiple attributable stakeholders, any genuine liabilities secured against the assets of the entity must be apportioned before determining each stakeholder's net asset attribution amount. If the principal home of a stakeholder is part of the entity assets then the home is an exempt asset for that stakeholder only.
Example 1: Darren, Fiona (a partnered couple) and Terry are attributed with one third each of the assets of a private family trust. The trust has assets totalling $600,000, and includes the principal home of Darren and Fiona that is valued at $100,000. The trust has a liability of $300,000 secured against the assets. The net asset attribution amount for each stakeholder is calculated as follows:
| Darren & Fiona | Terry | |
|---|---|---|
| Total entity assets | $600,000 | $600,000 |
| Less value of principal home |
$500,000 ($600,000 − $100,000) |
Nil |
| Assessable assets as a % of total entity assets |
83.33% ($500,000 ÷ $600,000) |
100% |
| Total liability | $300,000 | $300,000 |
| Amount of assessable liability |
$250,000 ($300,000 × 83.33%) |
$300,000 ($300,000 × 100%) |
| Attribution % | 33.33% each | 33.33% |
| Net attributable asset amount |
$83,333 each (($600,000 − (100,000 + $250,000)) × 33.33%) |
$100,000 (($600,000 − $300,000) × 33.33%) |
Example 2: Three brothers Tony, Dominic and Ben are attributed with one third each of an entity with assets totalling $1,000,000. The principal home of each brother is part of the assets of the entity. Tony's home is valued at $120,000, Dominic's home is valued at $90,000, and Ben's home is valued at $60,000. The entity also has a liability of $300,000 secured against all its assets. The net asset attribution amount for each stakeholder is calculated as follows:
| Tony | Dominic | Ben | |
|---|---|---|---|
| Total entity assets | $1,000,000 | $1,000,000 | $1,000,000 |
| Less value of principal home |
$880,000 ($1,000,000 − $120,000) |
$910,000 ($1,000,000 − $90,000) |
$940,000 ($1,000,000 − $60,000) |
| Assessable assets as a % of total entity assets |
88% ($880,000 ÷ $1,000,000) |
91% ($910,000 ÷ $1,000,000) |
94% ($940,000 ÷ $1,000,000) |
| Total liability | $300,000 | $300,000 | $300,000 |
| Amount of assessable liability |
$264,000 ($300,000 × 88%) |
$273,000 ($300,000 × 91%) |
$282,000 ($300,000 × 94%) |
| Attribution % | 33.33% | 33.33% | 33.33% |
| Net attributable asset amount |
$205,313 (($1,000,000 − ($120,000 + $264,000)) × 33.33%) |
$212,312 (($1,000,000 −($90,000 + $273,000)) × 33.33%) |
$219,311 (($1,000,000 − ($60,000 + $282,000)) × 33.33%) |
Note: For information in relation to multiple related entities see 4.12.7.40 Distributions of the income of a private trust or private company to an attributable stakeholder.
Act reference: SSAct section 1207X Attributable stakeholder, asset attribution percentage and income attribution percentage, 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 4.12.5 Liabilities of a Controlled Private Trust & Controlled Private Company, 4.12.4.30 Determining Homeowners & Non-Homeowners where the Home is Owned by a Private Company or Private Trust