4.6.5.50 Assessing Shares in Private & Unlisted Public Companies - Not Assessed Under Trusts & Companies Rules

Summary

This topic discusses:

• the assessable value of shares in private and unlisted public companies (1.1.C.220) not assessed under the trusts and companies rules,
• documents that an income support claimant or recipient must provide,
• documentation requirements for an income support claimant or recipient with a small or non-controlling shareholding,
• the net asset backing method of assessing shares,
• assessing partly paid shares,
• assessing governing director's shares, and
• assessing shares in companies in liquidation or receivership.

Assessable value

Shares in private or unlisted public companies are assessable assets (1.1.A.290) and need to be valued for assets test purposes.

Where a market exists for the shares, the market value is used to value the shares. If no market exists for the shares, generally the net asset backing method should be used.

Documentation required

The income support claimant or recipient MUST provide the following documentation:

• an up-to-date copy of the Memorandum and Articles of Association,
• a list of shareholders including the number and type of share/s held by the person and any recent share sales,
• details of dividends paid to shareholders,
• details of any other remuneration paid to shareholders including the nature and extent of duties performed by each shareholder,
• details of advances to or from shareholders and interest (if any) receivable or payable in respect of such advances, and
• if relevant, evidence that a market exists for the shares of the company (4.7.2.20).

Exception: A person is NOT required to provide these documents IF they do NOT currently have the documents in their possession AND obtaining it would involve personal expense. A delegate should contact the company accountant for details.

If possible, a person should provide the following documentation:

• the trading profit and loss account, AND
• the balance sheet for at least the most recent financial year, AND
• the director's report for at least the most recent financial year, AND
• the most recent ASIC return.

Small or non-controlling shareholdings

If an income support claimant or recipient has a small shareholding or does not have effective control of the company, the delegate MUST get the following information from the company accountant:

• any recent sales of shares, AND
• details of net asset backing per share, AND
• an estimate of the value of the shares, including the basis for that estimate.

Net asset backing method

The net asset backing method of valuing private company shares:

• uses the balance sheet of the company to determine what the net asset amount is, then
• divides the net asset amount by the number of issued shares that give access to the capital of the company upon wind-up (also known as shares that 'participate in capital distribution' or that are 'asset backed').
• The value of each shareholding is then calculated according to the number of shares held.

Assessing partly paid shares

If partly paid shares are NOT asset backed, the assessable value is:

• the face value of shares, MINUS
• any amount still owing on the shares.

If the shares are asset backed, ALL shares (both fully paid up and partly paid up) may be valued using the net asset backing method. The formula above would then be used to calculate the total asset value.

Assessing governing director's shares

The following table explains how to assess governing director's shares.

Shares in companies in liquidation or receivership

Use the DER to value shares in companies in liquidation or receivership.

Contact the relevant area in Centrelink IF:

• an income support recipient requests a revaluation of shares in a company in liquidation or receivership, AND
• the company does NOT appear in the DER and requests a revaluation.