Private trusts and private companies

If you’re part of a private trust or private company, we need to know your share of the income and assets.

We include this share when we work out if you can get an income support payment and your payment rate.

What a private company is

A private company is a company that meets at least 2 of these criteria:

  • it and its subsidiaries have a consolidated gross operating revenue for the financial year of less than $50 million
  • it and its subsidiaries have consolidated gross assets  at the end of the financial year of less than $25 million
  • it and its subsidiaries have fewer than 100 employees at the end of the financial year.

We may also consider it to be a private company if either:

  • it came into existence after the end of the last financial year
  • it’s a declared private company and is not an excluded company.

What a private trust is

A private trust includes:

  • family trusts
  • testamentary trusts
  • fixed trusts with fewer than 50 members.

It can’t be:

  • a public trust, for example a listed property trust or equity trust
  • a complying superannuation fund
  • a fixed trust with 50 or more members.

Testamentary trusts

These trusts are part of your will and become active when you die.

If your spouse leaves you a testamentary trust, we’ll attribute the trust’s assets and income to you if you either:

  • directly control the trust
  • potentially benefit from the trust.

How we attribute assets and income to you from trusts or companies

We might attribute a share of the assets or income of a company or trust to you. If we do, this means we treat the assets or income as yours. To decide this, we use a control test. We might also use a source test.

Control test

We use a control test to decide who has effective control of a company or trust.

There are 2 ways that someone can control a company or trust. Either:

  • they have effective control
  • they influence the trustee.

A person who has effective control of a trust is normally someone 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 trust’s:

  • appointor
  • principal or guardian
  • associate.

Keep in mind, the Trustee managing a trust day to day may not have effective control.

A person who has effective control of a company is normally someone who has:

  • 50% or more of the direct voting rights
  • a controlling interest of 15% or more in the company income or assets.

A person may also control a trust or company by being able to influence the trustee or directors to either:

  • act in their favour
  • go along with their wishes.

Source test

We may use this test if you transfer assets or services to a company or trust.

Even if you transfer your assets or services, we might decide you still control or partly control them. This might happen if:

  • the company or trust paid you less than market value for them
  • the transfer of the asset or service wasn’t a gift.

Gifts

We won’t attribute assets or services to you if you can clearly show:

  • the transfer was a genuine gift
  • you’re not involved in the company or trust at all.

In this case gifting rules will apply.

How we assess assets and income attributed to you

If we attribute control of a trust or company’s income or assets to you, we’ll assess these items as yours.

Income attribution

The amount of income we attribute depends on your level of control.

Not all expenses claimed on the trust or company’s tax return are allowable for social security purposes. This is because social security law is different from tax law.

For example, you can’t deduct:

  • past year losses
  • losses from an unrelated business against another
  • some capital expenses
  • some deductions allowed under the small business entity concessions.

Read about small business entity concessions on the Australian Taxation Office website.

Assets attribution

The amount of assets we attribute depends on your level of control.

We don’t count the value of your family home as an asset. Your family home is an exempt asset even if a trust or company owns it.

Our assets test doesn’t let you subtract all liabilities. Liabilities against your home or other exempt assets won’t reduce the value of the trust or company’s assets.

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.

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.

This income will count in your income test for 12 months from the date it is paid.

What relinquishing control of a trust or company is

Relinquishing control of a trust

This is when you give up control of a trust.

You relinquish control of a trust when you give up all formal roles, control and beneficial interest in the trust. To do this, you and your partner must do all of the following:

  • resign as the appointor and trustee
  • change the trust deed or make a separate deed to say you’ve given up your beneficial interest
  • declare in writing that you won’t exert any control or benefit from the trust in any way.

We may consider that you’ve made a gift if you both:

  • relinquish control of a trust
  • get less than value of the attributed assets.

If you have a corporate trustee

To relinquish control when a company is trustee of your trust, you and your partner must do all the following:

  • give up any shares in the company
  • both resign as directors of the company
  • declare in writing that you won’t exert any control over the company or benefit from it in any way.

Relinquishing control of a company

You’ve given up control of a company if both you and your partner do all of the following:

  • transfer or relinquish all shares
  • both resign as directors of the company
  • declare in writing that you won’t exert any control over the company or benefit from it in any way.

We accept you’ve given up control once you’ve done all of these things.

We may consider that you’ve made a gift if you both:

  • relinquish control of a company
  • get less than the value of the attributed assets.

We may count the value of the gift in your assets test for 5 years. The amount we include depends on:

  • the value of the company you gave up
  • your level of control
  • what consideration you received.

Relinquishing control of your farm

The Primary Production Concession has rules about handing your farm onto your children. These rules mean you can ensure it’s not sold.

Read more information about the Primary Production Concession on the Department of Social Services website.

Informal control

Even if you give up formal control of a trust, you may still have some informal control over it. Examples of informal control are:

  • still using trust’s assets, apart from your own home
  • having leaseback arrangements in place
  • still being a large creditor.

We won’t accept that you’ve given up control if we see signs of informal control.

Before you relinquish control

Relinquishing control of a trust or company could affect your payments from us. You can:

  • contact us to discuss how it could affect your payments
  • get independent advice about how it could affect the amount of tax you pay.

Page last updated: 19 August 2019

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