4.12.7.40 Distributions of the income of a private trust or private company to an attributable stakeholder
Date of effect
This topic has effect to controlled private trusts and controlled private companies from 1 January 2002.
Summary
This topic contains information on the following:
- income in excess of attributed amount
- income less than attributed amount
- income from multiple-related entities
- retained profits, and
- non-allowable deductions.
Income in excess of attributed amount
The income of an entity for an attributable stakeholder is generally assessed on an annual basis from the income tax return. However, if an attributable stakeholder receives income from an entity in excess of the attributed amount, (that is, more than the percentage of the entity attributed to him/her), the amount of income in excess of the attributable amount is to be treated as income for 12 months from the date of distribution/receipt. The gifting/deprivation rules are to apply to the other stakeholder/s in respect of the excess amount.
Example: Company A has 2 attributable stakeholders, Mervyn and Max. They are each attributed with 50% of the assets and income of the company. Mervyn receives JSP. The annual tax return indicates that the company recorded an (adjusted net) profit of $15,000 in the previous financial year. Mervyn received $10,000 and Max received $5,000. Mervyn received $2,500 more than his attributed amount. This amount is treated as income for 12 months from the date of receipt/distribution, on top of the $7,500 (50% of $15,000) already attributed to Mervyn.
Income less than attributable amount
If an attributable stakeholder receives income from an entity LESS THAN the attributed amount, that is, less than the percentage of the entity attributed to the individual, the amount of income LESS THAN the attributable amount is to be treated as a gift from the stakeholder and the deprivation rules are to apply.
Example: In the previous example Max received $2,500 less than his attributable share of the income of the company. Max is deemed to have 'gifted' the $2,500 and is subject to the deprivation rules, resulting in him being assessed as having received $7,500 in attribution income and having made a $2,500 gift.
Income from multiple-related entities
If the income support recipient is involved in one or more inter-related entities (e.g. entities with interests in other entities) then the recipient's interest in each group of inter-related entities is assessed as one interest for the purposes of assessing attribution income and distribution income. The attribution income and distribution income of each individual entity on its own, should not be assessed against the recipient. However should the income support recipient be involved with multiple entities with no relationship to, or interest in each other, the attribution income and distribution income to the recipient from the unrelated entities will be assessed separately.
Example: An income support recipient has an interest in a trading company which also acts as trustee of a family trust of which the recipient is a beneficiary. In this case the attribution income and distribution income to the recipient from the company and family trust COMBINED is taken into account. However, should the income support recipient have or obtain an interest in a third company with no interest or involvement in the aforementioned trust or company, the attribution income and distribution income to the recipient from this company will be taken on its own without regard to any other attribution income and distribution income.
Retained profits
If the entity retains a portion of the profits, the portion retained by the entity (subject to the percentage of the entity attributed to the stakeholder) is to be added to the actual amount received by the attributable stakeholder and deducted from the attributable amount. The balance is treated as a gift by the attributable stakeholder.
Example: Company C has 2 attributable stakeholders. Tim is attributed with 50% and Tom with 50% of the assets and income of the structure. Tom is in receipt of Age. The annual tax return indicates that the company recorded an (adjusted net) profit of $20,000 in the previous financial year. Tim received $10,000, Tom received $5,000 and the company retained profits of $5,000.
Tom was entitled to $7,500 (50%) of the distributed profits of the company. He received $5,000. As Tom has received less than his fair share of the distributed profits of the company, deprivation has occurred. Tom's deprivation amount is $2,500 (fair share of $7,500 less $5,000 actually received). Tim did not deprive himself of any income. His fair share of distributions was also $7,500, however he received actual distributions of $10,000.
Retained profits from previous years' trading paid to attributable stakeholders (only) are disregarded when assessing the income of the attributable stakeholder.
Non-allowable deductions
Where a company profit and loss statement is adjusted to remove non-allowable deductions, the attribution amounts calculated for the attributable stakeholders in the company will vary from the actual amounts paid. In such instances, look at the proportions in which the actual income was paid as represented on the income tax return. If these proportions reflect the attribution of income as determined by Centrelink, the issue of gifting and deprivation does not arise.
Example: Barry and Jack are the attributable stakeholders of a private company. Barry is attributed with 75% and Jack is attributed with 25% of the assets and income of the entity. Barry is in receipt of Age. The adjusted net profit of the company for the last financial year was $40,000 (arrived at following the removal by the assessor of $10,000 in non-allowable deductions from the profit and loss statement). The amount available for distribution from the income tax return is therefore $30,000 (non-adjusted net profit). Barry received $22,500 (75% of the non-adjusted net profit) and Jack received $7,500 (25% of the non-adjusted net profit). As the income support recipients have received income in the proportions attributed to them, the question of gifting and deprivation does not arise. Following the appropriate adjustments to the profit and loss statement, Barry's assessable income comes to $30,000 (75% of $40,000) and Jack's assessable income comes to $10,000 (25% of 40,000).
Act reference: SSAct section 1208R Disposal of income by company or trust