The Guides to Social Policy Law is a collection of publications designed to assist decision makers administering social policy law. The information contained in this publication is intended only as a guide to relevant legislation/policy. The information is accurate as at the date listed at the bottom of the page, but may be subject to change. To discuss individual circumstances please contact Services Australia.

4.12.7.30 Transfers of the Capital of a Private Trust or Private Company

Date of effect

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

Important note

In this chapter the term 'capital' refers to the assets of an entity, and 'capital transfer' refers to the distribution of such assets; such distributions are often referred to as 'capital distributions'. We have avoided using the term capital distributions in this section to avoid confusion with distributions of 'capital gains' that result from the sale of entity assets and which are generally contained in the entity income tax return.

Summary

This topic provides information on the following:

  • transfers of the capital of a private trust or private company to an attributable stakeholder,
  • capital transfers in excess of attribution percentage,
  • capital transfers to a non-attributable stakeholder, and
  • transfers of capital on wind-up of a private trust or private company.

Transfers of the capital of a private trust or private company to an attributable stakeholder

Transfers of the capital of a private trust or private company to an attributable stakeholder will NOT be assessed as income for social security purposes.

Explanation: As the capital of the structure is already assessed as an asset of the attributable stakeholder, a transfer of that capital to the stakeholder, is merely a shift of those assets and is not income for social security purposes. Deprivation does not result from such a transfer.

Example: Bill and Ben operate a gardening shop through a private company. They are both in receipt of an income support payment. Bill is attributed with 60% of the assets and income of the structure, Ben is attributed with 40%. Bill and Ben decide to withdraw $100,000 (capital) from the business. Bill receives $60,000 (60%), Ben receives $40,000 (40%). As the distribution is one of capital, it is not assessed as income for social security purposes. Furthermore, as the distribution has been made in accordance with the attribution percentages of the attributable stakeholders, no deprivation results from this transfer.

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

Capital transfers in excess of attribution percentage

The portion of the capital of a structure transferred to an attributable stakeholder which is in EXCESS of their attribution percentage, will be assessed as deprivation on the part of the other controllers in the structure.

Example: Bill and Ben decide to draw further capital of $60,000 from the structure. Bill receives $50,000, Ben receives $10,000. Bill received $14,000 in excess of his attribution percentage ($36,000). The excess amount of $14,000 is assessed as a gift on the part of Ben and the deprivation rules are applied to it.

Capital transfers to a non-attributable stakeholder

Transfers of the capital of a structure to a NON-ATTRIBUTABLE stakeholder will be assessed as a gift from the attributable stakeholder (subject to their attribution percentage). Such distributions will not be assessed as income of the recipient as they are transfers of capital.

Example: Bill and Ben have made a capital transfer of $20,000 to Bill's daughter, Jill, from the business. Jill is in receipt of PP. Bill is deemed to have gifted $12,000 (60%) and Ben is deemed to have gifted $8,000 (40%). The $20,000 Jill has received is not treated as income of Jill's but does form part of her assets under the assets test.

Transfers of capital on wind-up of a private trust or private company

Transfers of capital on the wind-up of a private trust or private company will be assessed in the same manner as capital transfers while the trust or company entity is still trading. That is, capital transfers will not be treated as income, but transfers made to either non-controllers or controllers in excess of their attribution percentage, will be assessed as a gift on the part of the (other) controller/s.

Act reference: SSAct section 1207H Constructive transfers of property or services to an entity, section 1073 Certain amounts taken to be received over 12 months, section 1106 Disposal of ordinary income, section 1123 Disposal of assets

Policy reference: SS Guide 4.12.7.40 Distributions of the income of a private trust or private company to an attributable stakeholder, 4.12.7.50 Distributions of the Income of a Private Trust or Private Company to a Non-attributable Stakeholder, 4.1.1 General provisions of deprivation

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