Fringe benefits from a spouse.
Each year in bankruptcy, a bankrupt’s income is assessed to determine if part of that income should be contributed to their bankrupt estate for the benefit of its creditors. As readers would be aware from previous articles and our income contributions factsheet, it’s the bankruptcy trustee’s role to assess a bankrupt’s income both actual for the past 12 months and expected for the next 12 months.
That assessment, usually conducted annually, involves writing to the bankrupt asking them to complete a questionnaire regarding their income. The bankrupt completes a questionnaire, returns it to the bankruptcy trustee along with evidence of their income, and the trustee completes the assessment. The bankruptcy trustee includes all sources of income, including benefits from third parties. For income contribution liability purposes, the Bankruptcy Act 1966 refers to certain provisions of the Fringe Benefits Tax Assessment Act 1986 to include as income benefits provided to the bankrupt. Importantly, these benefits do not necessarily need to be provided by the bankrupt’s employer to be included as income. For example, benefits can be provided, by the bankrupt’s spouse.
Examples of these might be the bankrupt living in real property registered in their spouse’s name for which no rent is paid or using a motor vehicle owned by the spouse. While such benefits provided by a spouse to a bankrupt are included as income, where that board or lodging or use of a motor vehicle is provided by a “close relative”, the value of that benefit up to $250 per week is excluded for the purposes of determining any income liability. The effect is that a spouse can support a bankrupt for the purposes of accommodation and use of a motor vehicle up to this amount without increasing the bankrupt’s income liability. For the purposes of the Fringe Benefits Tax Assessment Act, a ‘close relative’ is defined as a spouse, child or parent, or parent of a spouse.
For those advisors with bankrupt clients and assisting with reviewing income assessments, be on the lookout for how bankruptcy trustees treat such benefits in their annual assessments. If you want assistance in reviewing assessments conducted by other bankruptcy trustees, your local Worrells partner can assist.