Genuine investors in private trusts and companies 043-04110060

A genuine injection of capital has occurred where a person:

• has made a genuine injection of capital
• receives commensurate shares in the company or commensurate units in the unit trust, in return for the capital
• has a right to capital on wind-up
• has a right to dividends or distributions
• is over 18 years old

The customer who genuinely injected capital will have the historical value of the injection of capital assessed as an asset. However, the amount of the investment is subject to the following conditions:

• it is limited to the percentage shareholding or unit holding purchased
• it must be less than 50% of the present capital value of the entity
• if the value of the entity falls, the investment amount may be subject to reduction, based on information from the customer, and taking into account the current and past circumstances of the entity

Where the entity asset value has reduced, the genuine investor's amount should be recalculated to their net asset-backed share of the entity assets. This is what they could reasonably expect to get if the company were wound up or the unit trust vested. This amount could be adjusted from year to year if the value of the entity fluctuates, but will not rise above the actual amount of money initially invested by the genuine investor.

Using the historical value reflects the actual contribution made by the investor, but this method also recognises:

• the reality that a non controller relies entirely on the goodwill of the controller
• that the investor may never regain access to his or her investment, let alone any appreciation
• that until such time as a capital distribution is made, the controller has the enjoyment of the funds injected, including any appreciation
• that attribution is not reduced by a dilution of equity/control, without a genuine resignation

Note: it is not possible to obtain equity in a discretionary trust.

Genuine investors are recorded on the Trust and Company Attribution (TRA) and Trust and Company Distribution (TRD) screens. See Coding the Trust/Company Attribution (TRA) and Assessing and recording distribution income for coding help.