Resigning/relinquishing control of a trust or company or beneficial interest in a trust 043-04030080

It is important that customers who are controllers of a private trust or private company seek independent advice about the possible taxation implications of relinquishing control of a private trust or private company.

If the new controller is an associate, the associate rule will not apply. That is, the old controller will not be held to be in control simply by operation of the Associate rule.

A genuine resignation from a private trust is generally accepted as having occurred where both the controller and their partner do all of the following:

• relinquish all formal roles and control in respect of the trust
• relinquish all beneficial interest in the trust, and
• make a written declaration that they will not and have not exerted any control over, or benefit in any way from the trust since relinquishing control
• if the trustee of a trust is a company, the person or their partner must also relinquish all formal roles and control in respect of the company. This means they must relinquish all shares and directorships in the company, and make a written declaration that they will not and have not exerted any control over, or benefit in any way from, the company since relinquishing control

A genuine resignation from a private company will generally be accepted as having occurred where the controller and their partner, (if the partner is involved in the private company) do all of the following:

• relinquish all formal roles and control in the private company (directorships and office holder positions such as secretary)
• relinquish all shares in the private company (sold or transferred all their shares), and
• make a written declaration that they will not and have not exerted any control over, or benefited in any way from the private company since relinquishing control

The date of event will be when the controller and their partner have satisfied the first two requirements as long as their written declaration covers the period from this date.

For a trust, this means resigning as the appointor and/or trustee of the trust by amending the trust deed. It also includes transferring all trust property into the new trustee’s name. The customer also needs to relinquish all beneficial interest.

For a company, this means relinquishing all shares in the company and resigning from all Officeholder positions including Director.

Relinquishing beneficial interest by either a non-controller (that is, a beneficiary only) or a controller, can be done by either:

• amending the trust deed to remove the person and their partner as beneficiaries of the trust, or
• creating a separate deed to renounce the beneficial interest of the person and their partner in the trust

Note: some trust deed amendments must be stamped by the relevant state authority. Where stamping is required, the customer must provide a stamped copy of the amendment to the Complex Assessment Officer (CAO). Where the amendment does not need to be stamped, the customer must provide a copy of the amendment to the CAO, plus a letter from the solicitor stating the solicitor arranged the amendments and stamping was not required

Acceptable wording for a deed to relinquish beneficial interest

I (name of the beneficiary) renounce my entitlements to any further benefits from the (name of trust), whether those benefits be income or capital or any other nature. I request that the trustee of (name of trust) recognise my request that I receive no further benefit from the (name of trust) and furthermore recognise this renunciation of my beneficial interest in the (name of trust) as irrevocable.

Signed sealed and delivered

(Signature of beneficiary)

(Signature of trustee(s)), and

(Signature of witnesses for both the beneficiary and the trustee(s))

Note: if the customer would like a copy of the wording, issue a copy of the Social Security Guide 4.12.9.10 Resignations from a Controlled Private Trust or Controlled Private Company On or After 01/01/2002. See the References page for a link. This can be issued with either a Q999 or Request for Information (RFI) letter.

The final requirement in order for a genuine resignation from a private trust or private company to generally be accepted is for the controller and their partner, to make a written declaration that they will not exert any control over, or benefit in any way from the private trust or private company. Acceptable wording for the written declaration is:

I/We (name/name of partner) of (address) declare that I/we have not and will not exert any control over or benefit directly or indirectly in any way from (name of trust or company) since relinquishing control.

(Signature/s)

Note: if the customer would like a copy of the written declaration, add the declaration text to a Q999 and send.

If the controller gave up control of a discretionary trust before 1 January 2002, the gifting provisions do not apply. If the controller gave up control after the new rules were implemented on 1 January 2002, they have given away control of an attributable asset and the gifting and deprivation rules apply. The gifting amount will be the net value of the trust. See Trusts and companies - calculating a gift amount > Resources.

An extension until 31 March 2002 was granted by the Minister for customers relinquishing control without the gifting provisions being applied.

When a person gives away assets including relinquishing control as a result of a court order or property settlement following a relationship breakdown, it is not regarded as deprivation for social security purposes. Satisfying the demands of a court order or property settlement is considered adequate consideration for the asset.

If a stakeholder who holds a mortgage over an asset of the entity resigns, then the mortgage documents should be examined to determine the conditions of the mortgage, and whether the stakeholder has genuinely relinquished control of the entity or whether they are still able to exercise some informal control through holding this mortgage.

If the customer received a distribution before surrendering control, then that distribution is still assessed for 52 weeks under section 1073 of the Social Security Act 1991.

If the last distribution amount was zero and the customer has received the final distribution, enter 'Y' for the distribution being ceased. The procedure Assessing and recording distribution income contains further information.

Services Australia must be satisfied that the person and/or their partner is not exercising any control over, or receiving a direct or indirect benefit from, the private trust or private company. Where a person or their partner continues to exert control over, or receive a benefit from, a private trust or private company it will not be accepted that control has been relinquished.

Examples of situations that may indicate continued control and/or benefit include:

• arrangements involving the 'leaseback' of trust or company assets
• ongoing use and enjoyment of trust or company assets
• participation in business partnerships that involve the use of trust or company assets
• large loans owed by the trust or company to the person or their partner
• any other scheme or arrangement that provides continued control

Where the person's home is owned by the trust or company, then only the creation/retention of a life interest in the home is permitted.