Loans 108-04090070

Where a customer notifies of a new loan or updates an existing loan, confirm all income and assets changes related to the loan.

Can the customer provide all the information required to update the income or assets? See Coding income and assets for Centrelink payments and services.

• Yes, go to Step 2
• No, go to Step 6

A Complex Assessment Officer (CAO) must assess all loans to a private trust or company and all irrecoverable loans.

For loans:

• that are recoverable or forgiven (except to a private trust or company), go to Step 3
• to a private trust or company, go to Step 4
• the customer indicates are irrecoverable, go to Step 5

All Service Officers can update recoverable loans. This work must be processed at point of receipt for all payments.

• A recoverable loan is where the balance is expected to be repaid
• A forgiven loan is where the customer has chosen to gift some or all of the loan balance. A forgiven loan is not an irrecoverable loan

An update for recoverable or forgiven loans requires the following:

• investment name (for example, person's name)
• investment date
• percentage owned by the customer
• event date
• outstanding amount of the loan
• details of how repaid funds have been utilised
• amount forgiven (for forgiven loans)

Is the customer able to provide the required information?

• Yes, go to Table 2
• No, go to Step 6

Loans to a private trust or company require:

• a completed MOD PC or MOD PT
• trust or company balance sheet (if available)
• loan agreement (if one exists)
• outstanding amount of the loan

Has the customer provided the required information?

• Yes, go to Step 7
• No, go to Step 6

A failed or irrecoverable loan is a loan that will never be repaid. It is usually accepted as being irrecoverable if legal recovery action has been/is being taken. The customer must provide documented evidence of this. If required, see Assessing a failed loan.

If the customer declares the loan is irrecoverable, an assessment is required by a CAO. The CAO will determine if the loan is:

• a failed financial investment and may be disregarded as an asset, or
• has an assessable value less than the face value

Service Officers must collect all the information the customer can provide. The minimum required is:

• investment reference number (commercial loans)
• name of borrower
• security provided by the borrower
• details of current status
• outstanding amount of the loan
• any correspondence issued by debtor or other relevant source
• evidence of:
• legal recovery action
• court action, or
• advice from the liquidator

The customer must supply evidence the loan has failed. For more information, see the References page which contains links to the Social Security Guide.

There must be overwhelming evidence the loan has permanently failed, both now and in the future. A loan may still have some value but less than the face value.

Has the customer provided the required information for a referral to a CAO?

• Yes, go to Step 7
• No, go to Step 6

Request the information required, see Requesting information (CLK).

Record details on a DOC.

Procedure ends here, until the required information and/or documentation is provided,

If documents required for a CAO assessment have been provided, refer to a CAO. See Identifying and making suitable referrals to the Complex Assessment Officer (CAO).

Record details on a DOC.

Procedure ends here.

Are there details for the direct investment (loan) already keyed on the SVS screen?

• Yes,
• key 'S' and [Enter] to view the Deposit Accounts (SVDA) screen
• Go to Step 3
• No, key 'SVDI' in the Nxt field and [Enter] to go to the Direct Investments (SVDI) screen

On the SVDI screen, enter the name of the organisation and the name of the investment in the Investment Name field. This field is free text.

Note: if the loan is to a person, the investment name can be entered as the person's name. For example, ‘loan to son’ or ‘loan to John Smith’.

Update the following fields on the SVDI screen:

• Account Number: key the account number for the direct investment. If there is no account number, leave this field blank
• Type: key the investment type (for example, bond, debenture or loan)
• Balance: key the balance of the direct investment. Note: some direct investments such as promissory notes and bills of exchange are issued at a discount to the face value, for example, the interest is already included in the value stated on the security (for example, a promissory note may have a face value of $110 but was issued to the investor for $100. The difference is interest. The balance of the investment in these cases will be coded as $100)
• Interest %: this field must be coded if a deeming exemption has been applied. Note: if interest rate is not available and customer is able to provide the annual income received, the % rate can be worked out. For example, customer has $10,000 invested and they advise they have received $250. The interest rate is (250/10,000) x 100 = 2.5%) The system will calculate the income and display it on the Financial Investment Summary (IVIS) screen in the Deem Ex I field. If required, see Deeming exemptions
• the Non FI Deprvd field only applies to deprived income amounts. This field only displays if the code keyed in the Type field is 'DPI'
• Investment Date, key the date the direct investment was made
• %Owned Client/Partner: if the loan is owned in conjunction with the customer's partner, key the percent owned by the customer and their partner
• Event Date: key the date of event
• Assets Test Dedn Amt: if there is an amount which is deductible from the balance (for example, an amount borrowed to provide the loan), key that amount
• Deeming Exempt: leave blank unless exemption applies. Key 'Y' if the product is exempt from deeming
• Source: key the source of the information
• DOR: key the date of receipt of the information
• select [Enter] to view the Direct Investment Summary (SVIS) screen

Note: when coding a partial or full repayment of a loan, details of how the proceeds have been utilised should also be requested, coded and documented accordingly to demonstrate continuity of funds. See Coding income and assets for Centrelink payments and services.

Complete the activity on the Assessment Results (AR) screen.

Check if the loan balance, either partially or in full, is:

• forgiven (this is disposal of an asset that may be assessed as deprivation). See Assessing deprivation/gifting
• determined by a CAO to be irrecoverable

Tell the customer to inform Centrelink of any repayments on the loan so their payment entitlement can be reassessed and adjusted.

Record a DOC detailing the interview.

Review of loans will occur periodically through the Entitlement Review process.

Has the lender already forgiven the loan amount?

• Yes, go to Step 3
• No, go to Step 2

Discuss the following with the lender or relevant person and document the discussion:

• If the lender has spoken to their financial representative (that is, accountant or financial planner) or the Australian Taxation Office (ATO) about any possible impact on the entity for tax purposes
• If the lender is considering forgiving a loan to an entity, how forgiving a loan is assessed under the income and asset test
• The loan is reassessed from the date the decision was made to forgive the loan. That is, even if the loan forgiveness is backdated, the loan is reassessed from the date of decision. See General notification provisions and exceptions
• If the change to the entity's net assets will have any possible impact. (The total net assets may increase due to the forgiven loan amount ceasing to be a liability)
• If there will be any other possible changes. (For example, a change from the asset test to the income test)
• If there will be any deprivation from forgiving the loan? Go to Step 6
• If the loan forgiveness should appear on the entity's tax return? See Loan forgiveness user guide in Resources
• It is important to record if the loan amount has/has not already been forgiven

Is the lender proceeding with the loan forgiveness?

• Yes, go to Step 3
• No:
• DOC the decision
• procedure ends here

Supporting documents to confirm loan forgiveness can include:

• a Deed of Debt Forgiveness for each loan forgiven
• the entity's minutes showing the date the decision was made to forgive the loan amount
• a balance sheet as at the date the loan was forgiven. Refer to the user guide on the Resources page to decide what documents are required

Have the required documents been provided?

• Yes, go to Step 4
• No:
• the loan forgiveness cannot be assessed without supporting documents
• procedure ends here

Refer to the user guide for assistance in making this determination, see Resources.

Is the loan forgiven?

• Yes, go to Step 5
• No, DOC the decision and contact the relevant person to discuss

Procedure ends here.

Reassess the loan from the date the decision was made to forgive the loan:

• Ensure the correct date of receipt is recorded
• Normal notification rules apply to favourable/unfavourable decisions
• Under the notification provisions, if the loan forgiveness is backdated, it is only assessed from the date the decision was made. (For example, if the decision was made on 1 April 2019 to forgive the loan from 1 January 2019, the loan is reassessed from the date of decision, being 1 April 2019)
• See General notification provisions and exceptions if required

Go to Step 6.

Is the lender and/or their partner attributed with 100% control of the entity?

• Yes, no deprivation applies when a person and/or their partner is attributed with 100% control of the entity. Record the decision on the entity's record. Procedure ends here
• No, go to Step 7

Is the lender and/or their partner attributed with partial control of the entity?

• Yes, go to Step 8
• No, go to Step 9

If the lender and/or their partner is attributed with less than 100% control, a partial gift results when the loan is forgiven. If required, see Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20.

Code the lender's (person who gave the loan) GIFT screen as follows:

• Calculate the gift amount based on the person's attribution percentage. For example, If the lender forgives a loan of $50,000 and they are attributed with 30% of the entity, only 70% of the loan amount is assessed as a gift:
• $50,000 x 30%=$15,000 is not considered a gift
• $50,000 x 70%=$35,000 is recorded on the GIFT screen
• Code the calculated gift amount
• DOC the decision and calculations
• Contact the customer if there is an unfavourable decision

Procedure ends here.

Assess the whole amount forgiven as a gift if:

• the lender and/or their partner is not attributed with any control of the entity, and
• no valuable consideration has been received.
  If required, see Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20

On the lender's, (person who gave the loan), record:

• code the GIFT screen with the full amount of the loan
• DOC the decision and calculations
• contact the customer if there is an unfavourable decision

Procedure ends here.

CAOs must read the user guide on loan forgiveness before proceeding. See Resources.

Supporting documents to confirm loan forgiveness can include:

• The relevant entity's tax return and financials
• The entity's minutes declaring the date the decision was made to forgive the loan
• A letter from the entity's accountant
• For amended tax returns, proof that the return has been lodged with the Australian Taxation Office (ATO)

Have the required documents been provided?

• Yes, go to Step 2
• No, procedure ends here

Before deciding if the loan amount has been forgiven, the CAO must:

• confirm that the loan amount shows on both the entity's tax return and financial statements
• determine if the ATO should be notified of the loan forgiveness
• read the user guide for assistance in making the determination. See Resources

Is the loan forgiven?

• Yes, go to Step 8
• No, go to Step 3

When the loan forgiveness amount shows only on the financials, and not the tax return, the CAO must contact the relevant person to discuss the reason.

If the relevant person states:

• the loan does not need to be declared on the tax return (under ATO legislation), go to Step 4. (This only occurs in very limited situations)
• an amended tax return has been lodged, go to Step 6
• the loan amount has not been declared on the tax return
• the loan forgiveness is not accepted
• assess the full loan amount

Procedure ends here.

A letter is required from the entity's accountant stating:

• the reason why the ATO does not need to be notified of the loan forgiveness
• the relevant section of the tax legislation

Is there a letter from the accountant?

• Yes, go to Step 5
• No:
• the loan forgiveness is not accepted
• assess the full loan amount

Procedure ends here.

Forward the case to the Income and Assets Helpdesk via 'My level 2 Policy Helpdesk Request' who will advise if the loan forgiveness amount is accepted under the Social Security Legislation.

Has the helpdesk accepted that the loan is forgiven?

• Yes, go to Step 8
• No, assess the full loan amount

Procedure ends here.

Has the forgiven loan amount been declared on the amended tax return?

• Yes, go to Step 7
• No, assess the full loan amount

Procedure ends here.

Are there documents confirming the amended tax return has been lodged with the ATO?

• Yes, go to Step 9
• No, assess the full loan amount

Procedure ends here.

Was the person receiving an income support payment at the date the loan was forgiven?

• Yes, go to Step 9
• No, reassess the loan from the date of claim. Go to Step 9

Reassess the loan from the date the decision was made to forgive the loan.

• Record the correct date of receipt
• Apply normal notification rules to favourable/unfavourable decisions. See General notification provisions and exceptions if required
• Under the notification provisions, if the loan forgiveness is backdated, it is only assessed from the date the decision was made. For example, the decision was made on the 1 April 2019 to forgive the loan from 1 January 2019. The loan forgiveness is assessed from 1 April 2019

Go to Step 10.

Has the lender and/or their partner been attributed with 100% control of the entity?

• Yes, deprivation does not apply when a lender and/or their partner is attributed with 100% control of the entity. Record the decision on the entity's record. Procedure ends here
• No, go to Step 11

Has the lender, and/or their partner, been attributed with partial control of the entity?

• Yes, go to Step 12
• No, go to Step 13

If the lender and/or their partner is attributed with less than 100% control, a partial gift results when the loan is forgiven. If required, see Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20.

Code the lender's (person who gave the loan) GIFT screen:

• Calculate the gift amount based on the person's attributed percentage. For example, If the lender forgives a loan of $50,000 and they are attributed with 30% of the entity, only 70% of the loan amount is assessed as a gift:
• $50,000 x 30% = $15,000 is not considered a gift
• $50,000 x 70% = $35,000 is recorded on the GIFT screen
• DOC the decision and calculations
• Contact the customer if there is an unfavourable decision

Procedure ends here.

Assess the whole amount forgiven as a gift, if:

• the lender and/or their partner is not attributed with any control of the entity, and
• no valuable consideration has been received.
  If required, see Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20

On the lender's, (person who gave the loan), record:

• code the GIFT screen with the full amount of the loan
• DOC the decision and calculations

Contact the customer if there is an unfavourable decision.

Procedure ends here.

CAOs must read the user guide on loan forgiveness before proceeding. See Resources.

Did the entity forgive a loan amount owed by an individual? That is, the loan amount appeared as an asset on the entity's balance sheet.

• Yes, go to Step 2
• No, the procedure ends here

Note: 'entity' refers to the company or trust (lender) that makes the loan and the loan appears on the lender's balance sheet as an asset. For example, AA Pty Ltd loaned to John Smith, so the 'entity' AA Pty Ltd is the lender.

Does the individual have any control in the entity that forgave the loan?

• Yes, go to Step 3
• No, go to Step 8

Supporting documents can include:

• for the current financial year:
• a Deed of Debt Forgiveness for each loan forgiven
• a balance sheet for the entity, as at the date the loan was forgiven
• the entity minutes showing the date of the decision to forgive the loan
• for a past financial year:
• the individual's tax return for the relevant year
• the entity's minutes showing the date of the decision to forgive the loan
• the entity's tax return and financials for the relevant year
• a letter from entity's accountant
• for an amended tax return, documents showing the amended return has been lodged with the ATO

Have the required documents been provided?

• Yes, go to Step 4
• No:
• do not assess the loan from the entity as a forgiven loan
• DOC the decision
• contact the relevant person about the unfavourable decision
• procedure ends here

Refer to the user guide for assistance in making this determination. See Resources.

Has the loan been forgiven?

• Yes, go to Step 5
• No:
• DOC the decision
• contact the relevant person about the unfavourable decision
• procedure ends here

• Reassess the loan from the date of:
• the decision to forgive the loan if the customer was receiving an income support payment (ISP) or Low Income Health Care Card (LIC) at the time, or
• the ISP or LIC new claim (NCL)
• Record the correct date of receipt
• Apply normal notification rules to favourable/unfavourable decisions. See General notification provisions and exceptions if required
• Under the notification provisions, if the loan forgiveness is backdated, it is only assessed from the date the decision was made. For example, the decision was made on the 1 April 2019 to forgive the loan from 1 January 2019. The loan forgiveness is assessed from 1 April 2019

Go to Step 6.

Is the individual attributed with 100% control of the entity that forgave the loan?

• Yes, there is no gifting. Go to Step 8
• No, go to Step 7

If the individual and/or their partner is attributed with less than 100% control, a partial gift results when the loan is forgiven. If required, refer to Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20.

Code the GIFT screen on the customer's (lender's) record:

• Calculate the gift amount based on the person's attributed percentage. For example, if the lender forgives a loan of $50,000 and they are attributed with 30% control of the entity, only 70% of the loan amount is assessed as a gift:
• $50,000 x 30% = $15,000 is not considered a gift
• $50,000 x 70% = $35,000 is recorded on the GIFT screen
• DOC the decision and calculations
• Contact the customer if there is an unfavourable decision

Go to Step 8.

Has control of the entity that forgave the loan been attributed to another person who is also receiving an ISP or LIC?

• Yes, go to Step 9
• No, procedure ends here

If an ISP or LIC customer and/or their partner, or their trust/company:

• is attributed with 100% control of an entity, and
• that entity forgave the loan to a third party:
• assess the forgiven loan as a gift when no valuable consideration has been received
• code the GIFT screen of the customer who controls the entity with the whole amount forgiven

If an ISP or LIC customer and/or their partner, or their trust or company:

• is attributed with less than 100% control of an entity, and
• that entity forgave the loan to a third party:
• assess the forgiven loan as a partial gift when no valuable consideration has been received
• calculate the gift amount based on the attributed percentage of control.
  For example, the entity forgives a loan for $50,000 and the customer, or their trust or company, is attributed with 30% control of the entity. The remaining 70% is assessed as a gift.
  That is, $50,000 x 30% = $15,000. This amount is not considered as a gift. The remaining $35,000 is assessed as a gift
• see Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20 if required
• code the GIFT screen of the customer who controls the entity with the calculated amount
• DOC the decision and calculations
• contact the relevant customer/s if there is an unfavourable decision

Procedure ends here.

Note: the term 'entity' refers to the company or trust that made the loan. For example, if AA Pty Ltd made a loan to the Smith Family Trust. the entity is AA Pty Ltd.

CAOs must read the user guide on loan forgiveness before proceeding. See Resources.

Did the entity forgive a loan owed by a trust or company and the loan amount appears as an asset in the entity's balance sheet?

• Yes, go to Step 2
• No, procedure ends here

Does the trust or company have any control of the entity that forgave the loan? (For example, Brown Pty Ltd loaned Smith Pty Ltd $50,000. The shares in Brown Pty Ltd are owned, or partially owned, by Smith Pty Ltd.).

• Yes, go to Step 3
• No, go to Step 8

Documents required for a current financial year:

• A Deed of Debt Forgiveness for each loan forgiven
• A balance sheet for the entity and the controlling trust or company as at the date the loan was forgiven (if available)
• The minutes for the entity and the controlling trust or company showing the date of the decision to forgive the loan

Documents required for a past financial year:

• Tax returns for the entity and the trust or company
• A letter from the accountant for the entity or the trust or company, if other documents do not show the loan forgiveness
• For amended tax returns, proof that the return has been lodged with the ATO

Have the required documents been provided?

• Yes, go to Step 4
• No, the loan is still considered a loan from the entity to the trust or company

Procedure ends here.

Refer to the loan forgiveness user guide for assistance in making this decision. See Resources.

Is the loan forgiven?

• Yes, go to Step 5
• No:
• DOC the decision
• contact the relevant person to discuss
• procedure ends here

• Reassess the loan from the date of:
• the decision to forgive the loan if the customer was receiving an income support payment (ISP) at the time, or
• the new claim (NCL)
• Record the correct date of receipt
• Apply normal notification rules to favourable/unfavourable decisions. See General notification provisions and exceptions if required
• Under the notification provisions, if the loan forgiveness is backdated, it is only assessed from the date the decision was made. For example, the decision was made on the 1 April 2019 to forgive the loan from 1 January 2019. The loan forgiveness is assessed from 1 April 2019

Has the trust or company that has been forgiven the loan, been attributed with 100% control of the entity that forgave the loan?

• Yes, there is no gifting. Go to Step 8
• No, go to Step 7

If the trust or company is attributed with less than 100% control of the entity that forgave the loan, a partial gift results when the loan is forgiven. If required, see Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20.

Code the customer's (lender) GIFT screen:

• calculate the gift amount based on the trust or company's attributed percentage.
  For example, if an entity forgives a loan to a trust or company of $50,000 and the trust or company is attributed with 30% control of the entity, only 70% of the loan amount is assessed as a gift:
• $50,000 x 30% = $15,000 is not considered a gift
• $50,000 x 70% = $35,000 is recorded on the GIFT screen
• DOC the decision and calculations
• contact the customer if there is an unfavourable decision

Go to Step 8.

Has the entity that forgave the loan attributed full or partial control to a person who is receiving an income support payment (ISP) or Low Income Health Care Card (LIC)?

• Yes, go to Step 9
• No:
• DOC the decision
• procedure ends here

If another ISP customer/partner's, trust or company, is attributed with 100% control of the entity that forgave the loan:

• assess the forgiven loan as a gift when no valuable consideration has been received
• code the ISP/LIC customer's GIFT screen with the whole amount forgiven

If another ISP/LIC customer's/partner's, trust or company, is attributed with less than 100% control of the entity that forgave the loan:

• assess the forgiven loan as a partial gift when no valuable consideration has been received
• calculate the gift amount based on the attributed percentage of control.
  For example, the entity forgives a loan for $50,000 and the customer, or their trust or company, is attributed with 30% control of the entity. The remaining 70% is assessed as a gift.
  That is, $50,000 x 30% = $15,000. This amount is not considered as a gift. The remaining $35,000 is assessed as a gift
• see Gifting rules for trusts and companies and the Social Security Guide 4.12.10.20 if required
• code the ISP/LIC customer's GIFT screen with the calculated amount
• DOC the decision and calculations
• contact the customer if there is an unfavourable decision

Procedure ends here.