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.

4.7.1.50 Assessment of Assets for Partnerships

Summary

This topic provides information on the following items for partnerships (1.1.P.95):

  • assessable asset (1.1.A.290) amount,
  • valuing the interest in the partnership,
  • ownership of partnership assets,
  • verification of asset value,
  • valuation of real estate, and
  • summary of assessable assets.

Policy reference: SS Guide 4.7.1.40 Assessment of Assets for Sole Traders

Assessable asset amount

The amount to be taken into account for assets test purposes is the income support recipient's interest in the partnership.

Explanation: Interest in the partnership is the amount that the income support recipient would receive if the partnership were wound up, and depends on the:

  • net value of the partnership assets,
  • proportion of the net assets which the income support recipient is entitled to receive, and
  • net amounts contributed or withdrawn by the individual business partners.

Valuing the interest in the partnership

The proprietors' funds in a partnership:

  • are calculated using the assets and liabilities shown in the financial accounts, and
  • reflect the capital contributions and drawings (1.1.D.255) of each business partner.

Explanation: Each business partner's share of the partnership funds is shown in the financial accounts as proprietors' funds.

The income support recipient's share of the proprietors' funds is the total of both fixed AND current capital accounts (1.1.C.04) in their name, and this can be obtained from the latest balance sheet and/or the written partnership agreement.

The first approximation of the income support recipient's interest in the partnership is the amount shown on the balance sheet as:

  • their share of the proprietors' funds, AND
  • any loans they have made to the partnership.

Explanation: If a balance sheet is not available, a list of ALL partnership assets and liabilities, including their current values, will probably be required.

Ownership of partnership assets

The fact that an asset is used by a partnership to produce income does not necessarily mean that it is a partnership asset. Partnership assets may be acquired directly by the partnership or brought into the partnership by one or more of the business partners.

A formal transfer of the legal title of the asset to the partnership is clear evidence that the asset is now a partnership asset. However, the fact that the legal title of the asset has not been transferred does not necessarily indicate that the business partner has retained ownership. If there is no transfer of the legal title and no mention of the asset in the partnership agreement, the partnership accounts may indicate the treatment of the asset for assessment purposes. If the partnership accounts do not provide this information, a determination must be made as to whether the business partner who brought the assets into the partnership has retained both legal and beneficial ownership of those assets.

If legal or beneficial ownership of an asset brought into the partnership remains with a business partner and not the partnership, the full current value of the asset is assessed as THAT business partner's asset. The value of the asset is not assessed for any of the other business partners.

Verification of asset value

The recorded value of fixed assets, other than real estate, can generally be accepted for valuation purposes.

Explanation: Using conventional accounting methods, fixed assets are recorded at historical cost, usually the purchase price less depreciation.

Valuation of real estate

The following table describes the requirements for valuation of real estate.

If… Then…
real estate is recorded on the balance sheet, it must be assessed at its current market value (1.1.M.40), and a professionally qualified valuer's valuation MAY be necessary.
the real estate includes the income support recipient's principal home and adjacent land (1.1.A.58),

the assessable value of the real estate is the value of the land exceeding any exempt adjacent land.

Note: The assessable value also includes anything within the adjacent land that is not principally used for private or domestic purposes.
the assessable current market value of the real estate differs from the written down value,

the difference is shared between the business partners and added to their recorded interests in the partnership.

Explanation: Unless alternative arrangements are specified in the partnership agreement, the surplus or deficit on re-evaluation is allocated in the proportions in which each business partner shares in the partnership.

Policy reference: SS Guide 4.7.1.40 Assessment of Assets for Sole Traders

Summary of assessable assets

The following table summarises the assessable assets from a partnership's business for pension and allowance income support recipients.

Asset Treatment
Principal home Remove it from the balance sheet along with any associated liability, after apportioning where necessary.
Portion of home used exclusively for business purposes Include it as part of the assessable asset value of the business.
Petty cash and financial investments used as part of the on-going operations of the business listed as business assets Treat them as the assets of the business and include them when calculating the overall value of the business.
Financial investments not used as part of the operations of the business Assess them as personal financial assets of the income support recipient. Take them out of the business financial statements.
Goodwill Include it when valuing a business. Use the value shown in the balance sheet. Reassess the value if the income support recipient provides evidence of a different value.
Business assets

Assess the income support recipient's share of the current value of business assets, less business liabilities.

Explanation: This will be the sum of the income support recipient's capital and current account plus their share of adjustments, either excess or deficit, from the balance sheet, as per the partnership agreement or a proportion of profit (1.1.P.428) distributions.

Add this to the income support recipient's personal assets. If the business has a net deficiency of assets, its assets are assessed at $NIL.
Loans to the business by a business partner Treat them as an injection of capital in the business by adding the loan amount to the equity or the assessable value of the business partner's interest in the business.
Loans to the business by persons other than a business partner

Take into account as liabilities when calculating the assessable value of the business.

Assess them as 'loans' of the lender if the lender is an income support recipient.
Loans by the business to a business partner Include them as an asset when calculating the overall value of the business, but deduct the business partner's loan from the assessable value of their interest in the business.
Loans by the business to persons other than the owner Assess them as the personal financial investments of the business partners in the proportion to which they share these assets. Deeming applies. Take them out of the business financial statements and adjust partnership accounts.
Farm Management Deposits (this scheme, launched on 2 March 1999, replaces the Income Equalisation Deposits and Farm Management Bonds schemes) Assess them as the personal financial investment of the business partners in the proportion in which they share these assets. Deeming applies. Take them out of the business financial statements. Adjust the partnership accounts.
Non-partnership assessable assets providing security for business liabilities where the business has a net deficiency Deduct the income support recipient's share of the amount of the deficiency from the value of the assessable assets providing security.
Value if the income support recipient's share of interest in the business partnership is a deficiency, but the interest of the other member in the same couple, whether of the same sex or a different sex, in the same business partnership has an assessable value The amount of the deficiency is the value of the interest in a business partnership held by one member of a couple, whether of the same sex or of a different sex. Offset this against the assessable value of the interest held by the other member of the same couple in the same business partnership.

Act reference: SSAct section 1121 Effect of charge or encumbrance on value of assets, section 1121A Effect of certain liabilities on value of assets used in primary production, section 1122 Loans

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