If you’re involved in a private trust or private company, we use your share of the income and assets to work out if you can get an income support payment from us and your payment rate.
For social security purposes, a private company is a company that meets at least 2 of the following 3 criteria in relation to the last financial year.
- the consolidated gross operating revenue for the financial year of the company and its subsidiaries is less than $25 million
- the consolidated gross assets at the end of the financial year of the company and its subsidiaries, are less than $12.5 million
- the company and its subsidiaries have fewer than 50 employees at the end of the financial year, or the company came into existence since the end of the last financial year
A private trust can be:
- a family trust
- a testamentary trust
- a fixed trust with fewer than 50 members
It can’t be:
- a fixed trust with more than 50 members
- a complying super fund
- a public trust, for example a listed property trust or equity trust
These trusts are part of your will and become active when you die.
If your spouse leaves a testamentary trust, we will attribute the trust’s assets and income to you if:
- you directly control the trust, or
- you potentially benefit from the trust
If we attribute any share of the assets or income of a company or trust to you, this means we treat them as yours.
To decide this we use:
- a control test, or
- a source test
This is the test we use to decide who has effective control of a company or trust.
A trustee often manages a trust from day to day. But the person who has effective control is normally one who can:
- dismiss and appoint a trustee
- veto a trustee’s decision
- exercise control over the trust in another manner
- change the trust deed
This person could be the trustee’s:
- principal or guardian
We may find that the person who controls the trust is also a trustee.
A person may also control a trust by being able to influence the trustee to:
- act in their favour, or
- go along with their wishes
We may use this test if you transfer assets or services to a company or trust.
If you didn’t get adequate consideration in return for the assets or services, we normally decide that you still partly control them.
If it’s a gift
We won’t attribute the assets or services to you if you can clearly show:
- the transfer was a genuine gift
- you’re not involved at all in the company or trust
In this case gifting rules will apply.
When we attribute control of a trust or company to you, we assess part of its net income as being yours. The size of the share we count as yours depends on your level of control.
Our income test doesn’t let you deduct as many expenses as allowed on the company tax return. This is because social security law is different from tax law.
For example, you can’t deduct:
- past year losses
- losses from unrelated businesses
- some capital expenses
Where private trusts or private companies lodge financial statements under the Small Business Entity Concessions, we may still disallow some of expenses that the Australian Taxation Office allows.
Read about small business entity concessions on the ATO website.
When we attribute control to you, we count part of the current market value of the trust or company’s assets as yours. The size of this share depends on your level of control.
We don’t count the value of your family home. This is an exempt asset even if a trust or company owns it.
Our assets test doesn’t let you subtract all liabilities. Any liabilities against your home or other exempt assets won’t reduce the asset value of other trust assets.
If you don’t control the trust or company but do get income from it
The income will count in your income test. This includes:
- payments the trust distributes to you
- dividends the company pays you
- imputation credits from the company
These amounts will count in your income test for 12 months.
If you lend money to the trust or company
We’ll count it as a financial asset under the deeming rules. We do this whether or not you control the trust or company.
This is where you give up control of a trust or company. If you do this, we consider that you’ve gifted your share of its assets. We may count the value of the gift in your assets test for 5 years. The amount we include depends on:
- the market value of the assets you gave up
- your level of control
We accept that you’ve really given up control if both you and your partner:
- give up all formal roles and control:
- with a trust this means you resign as the appointer or trustee and change the trust deed to say so
- with a company this means you give up all shares and resign as a director
- give up all beneficial interest in the trust by:
- changing the trust deed to remove you and your partner as beneficiaries, or
- making a separate deed that says you both give up your beneficial interest
- declare in writing that you won’t exert any control over the trust or company or benefit from it in any way
If your trust has a company as trustee and you want to relinquish control you:
- and your partner must give up any shares in that company
- must both resign as directors of the company
- must declare in writing that you won’t exert any control over the company or benefit from it in any way
Even if you give up formal control of a trust, you may still have some informal control. We need to be sure that you and your partner don’t use any informal control over the trust.
We won’t accept that you’ve given up control if we see signs of informal control. Examples are:
- still using trust assets, apart from your own home
- leaseback arrangements
Before you give up control
Contact us to discuss how it could affect your payments from us.
Get independent advice about how it could affect the amount of tax you pay.
There are special rules about handing a farm on to your children, while also keeping the power to ensure it’s not sold.
Read more about rural customers and primary producers.