18.104.22.168 Assessing Loans & Guarantor Arrangements
This topic discusses:
- loans (1.1.L.65) made by a person,
- loans made by a business partnership (1.1.P.95),
- failed loans, and
- guarantor arrangements.
Loans made by a person
Money loaned by a person is an assessable asset (1.1.A.290). The value is the amount owed to the person but does not include any interest payable on the loan. The asset value applies whether or not the loan is performing to the terms of the loan agreement. An outstanding loan made by the person BEFORE 27 October 1986 is assessed in the same way as a loan made after this date. Loans are financial assets and are deemed.
Act reference: SSAct section 1122 Loans, section 9(1)-'financial asset'
Policy reference: SS Guide 4.1 Deprivation of income & assets, 4.6 Assets
Loans made by a business partnership
A loan made by a business partnership is assessed as an asset of the partnership. The value to the person is assessed in the same proportion as the value of their share in the partnership.
A failed loan is a loan that is not performing to the terms of the loan agreement.
There are 2 areas where the SS Act has special rules that may be able to assist a person with a failed loan:
- the hardship rules allow the asset value of the loan to be disregarded (4.6.7), and
- the loan can be exempted from deeming (22.214.171.124).
There are special requirements to be met before these rules can be applied.
Policy reference: SS Guide 4.6.7 Asset hardship rules, 126.96.36.199 Exemption of Financial Investments from Deeming, 188.8.131.52 Loans that No Longer Exist
A person does not dispose of assets merely by agreeing to be guarantor for a loan (1.1.G.75). However if the borrower defaults on the loan, the guarantor becomes liable to repay the loan.
The deprivation rules apply to the amount the person (guarantor) has repaid, from the date the guarantor repaid the loan (or had an asset sold to repay the loan).
Exception: If the person takes legal action against the borrower to recover the amount they repaid on the borrower's behalf, the deprivation rules do NOT apply. The amount the person repaid is treated as a debt owing to the person. This means it is assessed as an asset of the person. The assessable value is the recoverable value. Deeming does NOT apply.
Explanation: Debts are not financial investments as defined in the SSAct (section 9(1) financial investment).