Home property adjustment amount and apportionment calculations on entity owned residence 043-04060020

A person or a couple controls an entity which holds real estate assets of $500,000 consisting of a farm upon which the stakeholder's home is situated. The stakeholder's home, valued at $100,000, would be an exempt asset.

The assets attributable to a sole stakeholder would be $400,000, or $200,000 for each member of a couple.

The important point that this example makes is that a home is an exempt asset only for the stakeholder(s) who reside in the home.

John and his partner Debbie are involved in an entity with three other people. John and Debbie are attributed 20% each of the entity, the assets of which are a farm valued at $600,000 upon which their home is situated. The home, valued at $100,000, would be an exempt asset, but only for John and Debbie. They would be attributed 20% each of $500,000 ($600,000 less a home property adjustment of $100,000), or $100,000 each. The home is not an exempt asset in respect of three other persons who are attributed the other 60% (20% each) because they do not reside in the home. They would be attributed 20% each of the entire value of the entity, i.e. 20% of $600,000, being $120,000 each.

Ken controls an entity which holds real estate assets of $500,000 consisting of a farm upon which the controller's home is situated. The controller's home, valued at $100,000, would be an exempt asset. The assets that would be attributable to the customer would be $400,000. (100% of $500,000 less a home property adjustment amount of $100,000).

However, if the entity had a recognised liability of $200,000 that was borrowed to purchase the whole farm, the assessment would change. The liability would be apportioned so that only the proportion of the loan in respect of the assessable asset is allowed as a recognised liability.

In the above scenario, 80% ($400,000/ $500,000) of the property is an assessable asset, so 80%, or $160,000, of the liability will be allowed. The amount of assets attributed to the stakeholder(s) would be $240,000, i.e. 100% of the whole farm valued at $500,000 less the recognised portion of the liability of $160,000, less the value of the home property $100,000.

A customer's home and curtilage are exempt from the Assets Test. This also applies where the customer's home is owned by an entity (trust or company) of which he is a controller.

Therefore, if the entity owns the principal place of residence of a controller, the property's value and the balance of any loan secured over that property are adjusted before being attributed to that controller.

However, no adjustment is made for controllers whose principal place of residence is not owned by the entity. Appropriate coding will ensure that each controller is attributed with the correct amount. This example follows these principles.

A trust has four equal controllers, Arthur, Beatrice, Colin and Diana. The trust owns one property, on which are two homes. The property is worth $1,000,000 in total and there is a mortgage of $600,000 over the property. The net assets of the trust are therefore $400,000.

Arthur lives in one home on the property which is valued at $100,000, while Beatrice lives in the other home which is valued at $200,000.

Colin and Diana do not live on the property. Their interest in the trust is simply the net trust assets multiplied by their attribution percentage of 25% each i.e. $400,000 x 25% = $100,000 each.

Arthur's home is worth $100,000 or 10% of the total value of the property. The value of Arthur's home is exempt from the Assets Test. The home's value and the proportion of the mortgage relating to it must be subtracted before Arthur's attribution amount is determined i.e. $400,000 - $40,000 (10% of the net assets) = $360,000 x 25% = $90,000.

Beatrice's home is worth $200,000 or 20% of the value of the property. The value of Beatrice's home and the proportion of the mortgage relating to it, is also exempt from the Assets Test and must be subtracted before her attribution amount is determined i.e. $400,000 - $80,000 (20% of the net assets) = $320,000 x 25% = $80,000.

For more detail on house and curtilage assessments, see Assessing house and curtilage.

The house and curtilage concession for customers who meet the extended land use test also applies to the principal home if it is held in a private trust or private company. The controller of the private trust or company will be able to access the concession on the same basis as customers who own their principal residence directly.

Customer does not satisfy the extended land use test. For new claimants from 1 January 2007, if the customer's home comprises of a one hectare block with a second adjoining block of another hectare, which is on a separate title, the house and curtilage allowed is one hectare only and not a maximum of two hectares.

Note: for existing customers prior to 1 January 2007 a savings provision for real estate applies.

Customer does satisfy the extended land use test. If an Age Pension or Carer Payment customer's principal home and curtilage comprises of a six hectare block, which is on a single title, the whole property will be exempt if they satisfy the extended land use test. Note: a single title document may have more than one parcel of land included.

For more detail on house and curtilage assessments, see Assessing house and curtilage.