Business assets 043-03090010

Section 11 of the Social Security Act 1991 defines asset as 'property'. Property is not defined in the Act, but has an established common law meaning - any possession, belongings or property owned solely or partly, including beneficial interests, and/or debts owed to a person. For example, when a person sells an asset with the amount to be received over time as a sale by instalments then the outstanding amount is an asset.

All assets owned by a customer are treated as assessable assets and included when calculating the rate of income support payment unless specifically exempted under a provision of the Act. Section 1118 of the Social Security Act 1991 provides the details of assets exempted from assessment. There is no general exemption contained in section 1118 in regard to business assets.

A customer's interest in a business falls within the definition of asset and the value of this interest must be taken into account when determining entitlement to income support payments made by Centrelink.

The assets of sole traders and partnerships are viewed as personally owned while private trusts and private companies are assessed as separate legal identities. However, with the introduction of the Private Trusts and Private Companies legislation on 1 January 2002, assets also include any attributed assets of those entities from the application of section 1208E of the Social Security Act 1991 where the assets of the entity are attributed to a customer who is an attributable stakeholder in a controlled private trust or a controlled private company.

Assessable assets are taken into account at their net current market value. The current market value is the value at which a willing purchaser and a willing, but not anxious vendor would agree on. The current market value of an asset can be decreased by the value of an encumbrance secured against it.

The general principle is to assess the value of a customer's interest in the net assets remaining in the event of the wind-up of a business. That is, if the business operations were to cease, assets of the business were sold and converted to cash and all liabilities repaid, the assessable asset value of the customer's interest in a business would be the amount left over which the customer would receive.

This is accomplished by an assessment of the most recent business balance sheet, with adjustments made to reflect the current market value of business assets.

The value of a business is based on the information in the balance sheet and depreciation schedule. The basis for this approach is that the previous financial results of a business are the most accurate indication of the assets held by the business the customer has an interest in. Unless there has been some change in the business, the balance sheet and depreciation schedule continue to provide a sufficiently accurate indication of the assets held by the business. These financial statements, in particular the balance sheet, therefore represent the best starting point to calculate the current assessable asset value of a customer's interest in a business.

If included on the balance sheet, the value of a customer's exempt principal home must be removed when calculating the assessable value of a sole trader or partnership business entity. Any portion of any encumbrance secured over a customer's principal home must also be removed from the balance sheet. Where a customer occupies a house owned by a private trust or company, the decision on whether that customer is a homeowner or not depends on whether it can be concluded the person has a right or interest in their accommodation which provides them with reasonable security of tenure.

When the customer is involved in primary production activities, the primary production asset aggregation rules apply.

Centrelink may accept the value of some assets recorded on the business balance sheet, particularly for assets such as petty cash, bank accounts, and debts owing. Where the balance sheet may not reflect current market value, the delegate should take all reasonable steps to ascertain the current market value of the asset.

Under conventional accounting methods, fixed assets such as real estate, livestock and plant and equipment are recorded at historical cost. This will usually be the purchase price less amounts claimed as depreciation. Each item on the balance sheet must be assessed to determine if the asset value reflects current market value. The balance sheet is adjusted so the value of assets owned by a business reflects the current market values.

Real estate must always be assessed at current market value.

There are many definitions of goodwill, but generally it can be thought of as the reputation of a business. Goodwill may be included in the balance sheet of a business if the enterprise undertaken by the business was purchased as an already operating activity. In this situation the value of goodwill stated in the business balance sheet will usually represent the difference between the price paid for the business and the value of assets owned by the business. Goodwill is therefore an indication of the profit potential of a business.

Goodwill should be maintained as an asset if it appears in the balance sheet of a business.

If a customer disagrees with this assessment and is able to provide an explanation why the value of the business goodwill should be a lower amount, a reassessment can be made based on the additional information provided. If an assessor is unsure how to assess, discuss with Local Peer Support (LPS) who may then discuss with a Complex Assessment Officer (CAO), if necessary. If required, refer to a CAO.

Generally, Centrelink uses the business entity accounting convention. Assets and investments not considered to be related to the principal function of the business are removed and assessed separately.

A charge on an asset under section 189AB of the Bankruptcy Act 1966 is a 'charge or encumbrance' for the purpose of section 1121 of Social Security Act. When determining the value of a customer's asset it is to be reduced by the amount of the 'charge or encumbrance' imposed under the Bankruptcy Act 1966.