With effect from 1/1/2002, the Government has reduced the amounts of pension paid to persons using trusts or private companies to enable them to pass the income and means tests. The idea seems to be that social security payments should not be made to those who have the means to support themselves.

Previous to these changes, persons who could effectively control trusts of private companies could pass the assets that would infringe the means test to such entities, then claim the pension.

This was something of a change of mindset on the part of the Government.

Previously, the pension granting bodies had insisted that a reasonable rate of return be obtained on investments, and 'deemed' an amount of income to reflect this expectation if pensioners hoarded their assets in low (or even nil) income producing investments, in an attempt to circumvent the income test.

However, from1/1/2002, these bodies could lift the corporate or fiduciary veil. That is the notion that a company or trust is a separate legal entity, and any assets it holds do not belong to the human beings that settled those assets upon the trusts or companies.

Some of the considerations for deciding attribution of income and assets include:

There are a limited number of strictly targeted concessions that will ensure people are not unfairly affected by the changes. Most of these concessions apply only where particular circumstances existed before 7.30pm on 9 May 2000.

Concessions apply:

This person could be the appointor, principal or guardian. The trustee of a trust may also

hold some of these powers.

Informal control generally exists where a person has control via an associate.

For example, an associate such as a family member could be acting according to the "real"

controllers instructions.

Where multiple controllers exist, attribution will be based on the level of control each person can exercise.

For example, where a trust had three controllers each with equal powers, the starting point would be that each person would be attributed one-third of the trust income and assets. However, where a partnered couple can exercise effective control (for example where they are two of three controllers of a trust where the trust deed provides that decisions are made on the basis of the "majority rule") the partnered couple would generally be attributed with all of the trust’s income and assets.

This reflects the absolute power the person holds.

For example, they can retain profits within the company, or reduce or eliminate profits by paying themselves higher wages or director's fees, or they can issue more shares to themselves, thus diluting the value of minority share holdings.

They also control the assets of the structure and can prevent the company from being wound up.

For example, an associate such as a family member could be acting according to the "real" controllers instructions.

Where multiple controllers exist, attribution will be based on the level of control each person can exercise.

For example, where a company had three controllers, each with equal voting power, the starting point would be that each person would be attributed one-third of the company income and assets.

However, where a partnered couple can exercise effective control (for example where they are two of three controllers of a company where the company rules provide that decisions are made on the basis of the "majority rule") the partnered couple would generally be attributed with all of the company’s income and assets.

"Associate" includes a person’s:

Where a genuine injection of capital has been made to a company or unit trust, a concession will be allowed that recognises this.

A genuine injection of capital has occurred where:

The person who injected the capital will be attributed the historical value of the injection

There are two safeguards to ensure this concession is not abused:

Limiting the amount to the historical value reflects the actual contribution, while recognising the reality that a non-controller relies entirely on the goodwill of the controller:

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Loans will not be recognised at all unless there has been:

Generally, liabilities that are secured against specific asset(s) of a trust or company can only be offset in relation to the asset(s) against which the liability is secured.

For example, if a $100,000 liability is secured against an asset worth $80,000, only $80,000 of the loan would be allowed as a liability of the trust or company.

Liabilities that are secured against asset/s not owned by the Trust or Company will not be allowed.

No, generally the assets of the company or trust with a positive asset position will be assessed. The assets of the company or trust with a negative asset position will be treated as having a nil asset value.

However, primary production assets and liabilities, including those personally held and those attributed from a trust and company (after 1 January 2002), can be offset under special Centrelink "Primary Production Aggregation" rules.

Some loans and debts will not be allowed as a liability of a trust or company unless certain conditions are met.

This means the amount of a loan or debt may be non allowable as a liability of a trust or company, but continue to be assessed as a personal asset of the lender for means test purposes.

As the customers current assessment would include these assets it is highly likely that she/he will be already aware of the existence of these arrangements and providing a loan acknowledgement should not provide any difficulty.

Liabilities in respect of genuine third parties such as banks and other financial institu-tions, will be accepted as long as the liability is recorded on the trust or company balance sheet and documents support the existence of the liability.

If you are the sole controller and the loan is recorded on the trust balance sheet, the loan will be allowed as a liability of the trust.

If you are only a partial controller, a witnessed, written loan acknowledgement, signed by each party to the loan exists, and the loan is recorded on the trust balance sheet, the loan will be allowed as a liability of the trust. If no written acknowledgement exists the loan will not be allowed as a liability.

Regardless of whether the loan is allowed as a liability of the trust, the amount of the loan will be treated as your personal financial asset and will be subject to deeming.

Regardless of whether the loan is allowed as a liability of the trust, the amount of the loan will be treated as the family members personal financial asset and will be subject to deeming.

These loans will be treated in exactly the same way as all other liabilities and will not be recognised unless they meet the conditions as previously outlined.

Nothing will change, the loan will continue to be treated as your financial asset and deeming will continue to apply.

Debts, such as unpaid dividend entitlements, owed to third parties will be an asset of that person however debts may not be subject to deeming.