ATO Interpretative Decision
ATO ID 2004/147 (Withdrawn)
Income Tax
CGT small business concessions: connected entities - 'control' of a superannuation fundFOI status: may be released
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This ATO ID is withdrawn as the ATO view on this matter is now reflected in Draft Taxation Determination 2006/D29.This document has changed over time. View its history.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Do the trustees or the members of a complying superannuation fund 'control' the superannuation fund in the way described in section 152-30 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Neither the trustees nor the members of a complying superannuation fund control the superannuation fund in the way described in section 152-30 of the ITAA 1997.
Facts
The taxpayer, a company, carries on business. Two individuals (husband and wife) each own 50% of the shares in the company. The two individuals are also the only members and the trustees of a complying superannuation fund. The superannuation fund owns all the units in a unit trust which itself owns certain assets, some of which are used in the company's business.
The taxpayer company intends to sell a business asset and seek access to the small business capital gains tax (CGT) concessions in Division 152 of the ITAA 1997. Accordingly, the company must determine whether it satisfies the $5 million maximum net asset value test and, in considering that test, whether the superannuation fund and the unit trust are connected entities.
Reasons for Decision
Under subsection 152-30(1) of the ITAA 1997 an entity is 'connected with' another entity if either entity controls the other entity in the way described in section 152-30 or both entities are controlled in that way by the same third entity.
Under paragraph 152-30(2)(a) of the ITAA 1997, an entity 'controls' another entity if it (together with any small business CGT affiliates) beneficially owns, or has the right to acquire the beneficial ownership of, interests in the other entity that carry between them the right to receive at least 40% of any distribution of income and capital by the other entity.
However, the members of a complying superannuation fund do not beneficially own, or have the right to acquire beneficial ownership of, interests carrying the right to distributions of income or capital. Moreover, a superannuation fund does not distribute income or capital as such, but rather pays benefits on the occurrence of certain events.
Similarly, the trustees of a complying superannuation fund also do not beneficially own, or have the right to acquire beneficial ownership of, interests in the fund carrying the right to receive distributions of income or capital.
Accordingly, neither the trustees nor the members of a complying superannuation fund control the fund under paragraph 152-30(2)(a) of the ITAA 1997. Further, as a complying superannuation fund will not be a discretionary trust, the control rules in paragraph 152-30(2)(c) and subsection 152-30(5) will not apply to make the trustees or the members control the fund. Therefore, neither the trustees nor the members of a complying superannuation fund control the fund in the way described in section 152-30.
In this particular case, although the two individuals both control the taxpayer company under paragraph 152-30(2)(b) of the ITAA 1997 (they both own 50% of the shares in the company), the superannuation fund and the company are not controlled by the same third entity and are therefore not connected under paragraph 152-30(1)(b) because the individuals do not control the fund. On a similar basis, the unit trust and the company are also not connected.
It is also considered that neither the members nor the trustees of a complying superannuation fund are small business CGT affiliates of the fund under paragraph 152-25(1)(b) of the ITAA 1997.
Therefore, although the two individuals both control the company, the superannuation fund itself does not control the company (via the aggregation of its affiliates' interests) under subsection 152-30(2) of the ITAA 1997, because the individuals are not small business CGT affiliates of the fund, and therefore the fund is not connected with the company under paragraph 152-30(1)(a).
Date of decision: 19 December 2003Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
Division 152
paragraph 152-25(1)(b)
section 152-30
subsection 152-30(1)
paragraph 152-30(1)(a)
subsection 152-30(2)
paragraph 152-30(2)(a)
paragraph 152-30(2)(b)
paragraph 152-30(2)(c)
subsection 152-30(5)
Keywords
Capital gains tax
CGT small business relief
Connected entity
Maximum net asset value test
Small Business CGT affiliate
Superannuation
Trustees
ISSN: 1445-2782
| Date: | Version: | |
| 19 December 2003 | Original statement | |
| You are here | 16 June 2006 | Archived |