Assessment of income from trusts and companies 043-04050000

Complex Assessment Officers (CAO) determine the amounts of income to be attributed and what was distributed to a customer based on the customer's involvement in a designated and controlled private trust or private company.

Where the customer is a full or part controller then the income of the entity will be assessed. Where there are no customers who are controllers, then the CAO will still need to assess distributions from, and loans to, the trust or company for the customers who are involved in the entity.

Note: different rules apply to an approved Special Disability Trust (SDT). This procedure does not cover SDTs.

Attribution income is the assessment of the entity's assessable income as the customer's income. The amount is determined by the person's attribution income percentage multiplied by the entity's assessable income. This determination could involve attribution of income from multiple trusts and companies.

Distribution income is the actual distribution or dividend amount paid to a Centrelink customer by a trust or company. If the customer is a controller only distributions in excess of their attribution income amount is assessed as distribution income. The gross amount of the dividend payment, including any imputation credit, is the amount to be assessed as income.

For example: A trust has income of $20,000. The customer has been determined to have 50% control. The customer has received an actual distribution of $15,000. Accordingly, attribution income of $10,000 and distribution income of $5,000 is assessed.

The assessed income includes the actual amount of any individual payments, and any imputation credits attached to them.

From 1 July 2019, Work Bonus may be applied to attribution and distribution income. To be eligible for Work Bonus the customer's role in the company must involve personal exertion. This means the customer's direct involvement helps generate income for the entity. For example truck driving, bookkeeping or sales.

Work Bonus is available to customers who are:

• of Age Pension age, and
• receiving an income support payment other than Parenting Payment Single (PPS)

Insurance bonds are medium to long term investments normally made with a single payment which have a nominal 10 year term. Investment earnings accumulate within the bond and are received tax paid only at the end of the bond's term (after 10 years).

Bonds are normally deemed for Income Test assessment when owned by an individual despite earnings generated not being actually received.

Where an insurance bond is held in a family trust, income is to be assessed as ordinary income only on the bonds maturity or when actual income payments are made by the insurance bond, for example, if bonuses are payable.

FBT paid to the Australian Taxation Office (ATO) is a legitimate deduction for private trusts and companies.

Any amounts of FBT reimbursements received for employees is included as income of the entity.

For information about the treatment of investment funds held in trust, see Trusts.

The attribution principles apply and the issue should be referred to a CAO for a decision.