Assessing and recording loans and liabilities for trusts and companies 043-04090000

Liabilities can include loans that have been made to a trust or company, or debts owed by a trust or company. A loan is where a customer has lent money or an asset to a trust or company and the trust or company has yet to repay that loan or asset. A loan is also an unpaid distribution or dividend owed by a trust or company to a customer.

For loans, there are three considerations:

• The loan must be in the name of the trust or company
• An actual lending of money or an asset of a particular value to a trust or company must have occurred. This is to prevent the creation of contrived liabilities in order to reduce assessable asset values
• There must be a clear intention by the trust or company to repay the loan. An intention to repay can be accepted unless otherwise stated. Repayment schedules or other written repayment arrangements are not required

Liabilities on the balance sheet may be deducted from the value of assets to determine the assessable net asset value of the trust or company.

Some loans and debts shown as liabilities on the balance sheet are not allowable liabilities for social security purposes even though they may be allowable as liabilities for accounting and taxation purposes. This decision will be made by Complex Assessment Officers (CAO).

Loans from controllers, associates or genuine third parties are assessed as a personal asset of the controller, associate or third party, and deemed income applies, regardless of whether the loan is allowed as a liability of the trust or company.

Debts owed by the entity to a controller, associate or genuine third party who is a Centrelink customer are assessed as an asset of that customer regardless of whether the debt is allowed as a liability of the trust or company. Deemed income does not apply as the money represents a debt rather than a loan.

The main issues that need to be considered when determining whether a liability is allowable are:

• the security of the liability
• whether the liability is secured against an exempt asset, such as a controller's home
• whether the liability is adequately documented

Where a loan is owed to a Centrelink customer the value recorded as a liability on the trust and company record will be passed by the system to the customer's record. It will pass to the Direct Investments (SVDI) screen and be assessed against the customer's record for deeming and Assets Test purposes. The assessment of the loan may be different if the customer is in receipt of Farm Household Allowance. See Assessing assets for Farm Household Allowance (FHA).

Where a debt is owed to a Centrelink customer the value recorded as a debt on the trust or company's record will be passed by the system to the customer's record. It will pass to the Other Assets (OAS) screen and will be assessed against the customer's record for Assets Test purposes.