Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7 - Private companies  

SECTION 103A   PRIVATE COMPANIES  

103A(1)    
For the purposes of this Division, a company is a private company in relation to the year of income if the company is not a public company in relation to the year of income.

103A(2)    

For the purposes of subsection (1), a company is, subject to the succeeding provisions of this section, a public company in relation to the year of income if:

(a) shares in the company, not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits, were listed for quotation in the official list of a stock exchange, being a stock exchange in Australia or elsewhere, as at the last day of the year of income;

(b) at all times during the year of income, the company was a co-operative company as defined by section 117 ;

(c) the company has not, at any time since its formation, been carried on for the purposes of profit or gain to its individual members and was, at all times during the year of income, prohibited by the terms of its constituent document from making any distribution, whether in money, property or otherwise, to its members or to relatives of its members; or

(d) the company is:

(i) a mutual life assurance company;

(ii) a friendly society dispensary;

(iia) (Repealed by No 101 of 2004)

(iii) a body constituted by a law of the Commonwealth or of a State or Territory and established for public purposes, not being a company within the meaning of the law in force in a State or Territory relating to companies;

(iv) a company in which a Government or a body referred to in subparagraph (iii) had a controlling interest on the last day of the year of income; or

(v) in relation to the year of income, a subsidiary of a public company.

103A(3)    

Subject to subsection (5), a company is not, by virtue of paragraph (2)(a) or (b), a public company for the purposes of subsection (1) in relation to the year of income where:

(a) at any time during the year of income, one person or persons not more than 20 in number held, or had the right to acquire or become the holder or holders of, shares representing not less than three-quarters of the value of the shares in the company, other than shares entitled to a fixed rate of dividend only;

(b) at any time during the year of income, not less than three-quarters of the voting power in the company was capable of being exercised by one person or by persons not more than 20 in number;

(c) not less than three-quarters of:

(i) the amount of any dividend paid by the company during the year of income; or

(ii) if more than one dividend was paid by the company during the year of income - the total amount of all the dividends paid by the company during the year of income,

was paid to one person or to persons not more than 20 in number; or

(d) a dividend was not paid by the company during the year of income but the Commissioner is of the opinion that, if a dividend had been paid by the company at any time during the year of income, not less than three-quarters of the amount of that dividend would have been paid to one person or to persons not more than 20 in number.

103A(3A)    

Subject to subsection (3B), a company shall not be taken for the purposes of subsection (1) to be a public company in relation to a year of income by reason that a body constituted and established as mentioned in subparagraph (2)(d)(iii) (in this subsection referred to as the public body ) had a controlling interest in the company on the last day of the year of income if:

(a) by reason of:

(i) any of the provisions contained in the constituent document of the company as in force on the last day of the year of income; or

(ii) any right, power, option or agreement in existence on the last day of the year of income that related to the management or conduct of the affairs of the company, including any right, power, option or agreement that related to the issue, allotment or redemption of shares, or the grant, withdrawal or variation of rights in respect of shares,

the exercise by the public body of any right or power in connexion with the company (being a right or power relating to the exercise by the public body of a controlling interest in the company), whether on the last day of the year of income or at any later time, could have been prevented;

(b) rights or powers of the public body in connexion with the company were exercised during the year of income otherwise than for the benefit of the public body or were not exercised in circumstances where it might reasonably have been expected that they would have been exercised;

(c) any shares in the company that were held by the public body on the last day of the year of income were acquired by the public body for no consideration or for a consideration that, in the ordinary course of commercial dealing, would be considered inadequate;

(d) in pursuance of any agreement entered into before the end of the year of income, the public body agreed to dispose of all or any of the shares in the company that were held by the public body on the last day of the year of income, being a disposal that was to take place at any time after the last day of the year of income;

(e) a dividend was paid by the company at a time during the year of income when the public body had a controlling interest in the company, and less than one-half of the amount of that dividend was paid to the public body; or

(f) a dividend was not paid by the company at a time during the year of income when the public body had a controlling interest in the company but the Commissioner is of the opinion that, if a dividend had been paid by the company at such a time, less than one-half of the amount of the dividend would have been paid to the public body.

103A(3B)    

Subsection (3A) does not apply in relation to a company in relation to a year of income if the Commissioner is satisfied that no shares in the company that were held by the public body referred to in that subsection on the last day of the year of income were allotted or transferred to the public body for the purpose, or for purposes that included the purpose, of enabling the company to be treated as a public company in relation to the year of income for the purposes of subsection (1), or in pursuance of an agreement entered into, or a course of conduct engaged in, for the purpose, or for purposes that included the purpose, of enabling the company to be so treated.

103A(3C)    

Paragraph (3A)(c) does not apply to an acquisition that is taken by section 70-30 or 70-110 of the Income Tax Assessment Act 1997 to have occurred.

103A(4)    

Subject to subsection (4D), a company is, for the purposes of this section, a subsidiary of a public company in relation to the year of income if:

(a) at all times during the year of income all the shares in the first-mentioned company were beneficially owned by a company which, or companies each of which, is a public company for the purposes of subsection (1) in relation to the year of income of that company (in this subsection referred to as the corresponding year of income ) that corresponds with the first-mentioned year of income but which is not, or none of which is:

(i) a company to which paragraph (2)(c) applies in relation to the corresponding year of income; or

(ii) a subsidiary of a public company for the purposes of this section in relation to the corresponding year of income by reason of subsection (4B);

(b) the corresponding year of income, or each of the corresponding years of income, referred to in paragraph (a) ended on the same day as the year of income first-mentioned in that paragraph;

(c) at no time during the year of income was a person or were 2 or more persons in a position to affect rights of the relevant holding company or holding companies in connexion with the first-mentioned company so as to prevent the relevant holding company or holding companies from exercising for its or their own benefit the whole of the voting power in the first-mentioned company or from receiving for its or their own benefit the whole of any dividends that might be paid by the first-mentioned company or of any distribution that might be made of capital of the first-mentioned company; and

(d) no agreement was entered into before or during the year of income by virtue of which a person or 2 or more persons would be in a position after the year of income so to affect rights of the relevant holding company or holding companies in connexion with the first-mentioned company.

103A(4A)    

For the purposes of paragraphs (4)(c) and (d), a person shall be taken to have been, or to be, in a position at a particular time to affect any rights of the relevant holding company or holding companies in connexion with the company first-mentioned in subsection (4) (in this subsection referred to as the first-mentioned company ) if at that time that person had or has a right, power or option (whether by virtue of any provision in the constituent document of the first-mentioned company or by virtue of any agreement or instrument or otherwise) to acquire those rights or to do an act or thing that would prevent the relevant holding company or holding companies from exercising those rights for its or their own benefit or receiving any benefits accruing by reason of those rights.

103A(4B)    

Subject to subsection (4D), a company that is not, by virtue of subsection (4), a subsidiary of a public company for the purposes of this section in relation to the year of income is, for the purposes of this section, a subsidiary of a public company in relation to the year of income if:

(a) at all times during the year of income the voting power in the first-mentioned company was controlled, or was capable of being controlled, by a listed company or listed companies, either directly or through one or more companies, trustees or partnerships interposed between the first-mentioned company and the listed company or listed companies;

(b) at all times during the year of income a listed company or listed companies had a right to receive, either directly or through one or more companies, trustees or partnerships interposed between the first-mentioned company and the listed company or listed companies, more than one-half of any dividends that might be paid by the first-mentioned company and more than one-half of any distribution that might be made of capital of the first-mentioned company;

(c) at no time during the year of income was a person or were 2 or more persons in a position to affect rights of the listed company or listed companies in connexion with the first-mentioned company so as to prevent the listed company or listed companies from exercising for its or their own benefit control of the voting power in the first-mentioned company or from receiving for its or their own benefit more than one-half of any dividends that might be paid by the first-mentioned company or of any distribution that might be made of capital of the first-mentioned company; and

(d) no agreement was entered into before or during the year of income by virtue of which a person or 2 or more persons would be in a position after the year of income so to affect rights of the listed company or listed companies in connexion with the first-mentioned company.

103A(4C)    

For the purposes of paragraphs (4B)(c) and (d), a person shall be taken to have been, or to be, in a position at a particular time to affect any rights of a listed company or listed companies in connexion with another company if at that time that person had, or has, a right, power or option (whether by virtue of any provision in the constituent document of the other company or of any company interposed between the listed company or listed companies and the other company or by virtue of any agreement or instrument or otherwise) to acquire those rights or to do an act or thing that would prevent the listed company or listed companies from exercising those rights for its or their own benefit or receiving any benefits accruing by reason of those rights.

103A(4D)    

A company (in this subsection and subsection (4E) referred to as the company concerned ) that would, apart from this subsection, be a subsidiary of a public company for the purposes of this section in relation to the year of income shall be deemed, for the purposes of this section, not to be a subsidiary of a public company in relation to the year of income if the Commissioner is satisfied that:

(a) where the company concerned would, apart from this subsection, be such a subsidiary in relation to the year of income by virtue of subsection (4) - the affairs of the company concerned were managed or conducted in the year of income in the interests of persons other than the relevant holding company or holding companies; or

(b) where the company concerned would, apart from this subsection, be such a subsidiary in relation to the year of income by virtue of subsection (4B) - the affairs of the company concerned were managed or conducted in the year of income without proper regard to the interests of the relevant holding company or holding companies.

103A(4E)    

In considering whether the affairs of the company concerned were managed or conducted in the year of income as mentioned in subsection (4D), the Commissioner shall have regard to:

(a) the circumstances in which the relevant holding company or holding companies acquired a direct or indirect beneficial interest or interests in shares in the company concerned (whether the interest was, or the interests were, acquired before or during the year of income) and, in particular, whether those circumstances were capable of explanation by reference to ordinary commercial dealing;

(b) the provisions of the constituent document of the company concerned as in force during the year of income that related to the management or conduct of the affairs of that company, including the provisions of the constituent document that related to the appointment or removal of directors, the issue, allotment or redemption of shares, the grant, withdrawal or variation of rights in respect of shares, the payment of dividends and the investment or other application of moneys of that company;

(c) the nature and extent of any right, power, option or agreement in existence during the year of income that related to the management or conduct of the affairs of the company concerned, including any right, power, option or agreement that related to the appointment or removal of directors, the issue, allotment or redemption of shares, the grant, withdrawal or variation of rights in respect of shares, the payment of dividends and the investment or other application of moneys of that company;

(d) whether rights of the relevant holding company or holding companies in connexion with the company concerned were exercised during the year of income otherwise than for the benefit of the relevant holding company or holding companies or were not exercised in circumstances where it might reasonably have been expected that they would have been exercised;

(e) the nature and source of the income derived by the company concerned during the year of income and whether the derivation by that company of that income was capable of explanation by reference to ordinary commercial dealing;

(f) the manner in which the moneys of the company concerned were applied during the year of income and, in particular, whether they were lent to, or invested or otherwise made available for the use or benefit of, a person or persons other than the relevant holding company or holding companies and, if any such moneys were so lent, invested or made available:

(i) the terms and conditions upon which the moneys were so lent, invested or made available;

(ii) whether the lending, investment or making available of those moneys was capable of explanation by reference to ordinary commercial dealing; and

(iii) the connexion (if any) between that person or those persons, the directors of the company concerned and the directors of, or the beneficial owners of the shares in, the company from which the company concerned received dividends before or during the year of income;

(g) the respective amounts of any dividends in respect of shares in the company concerned that were paid during the year of income or might reasonably be expected to be paid after that year by that company and the circumstances in which those dividends were, or might be expected to be, paid; and

(h) any other relevant matters.

103A(5)    

Where a company would not, under the preceding provisions of this section, be a public company for the purposes of subsection (1) in relation to the year of income but the Commissioner is of the opinion that, having regard to:

(a) the number of persons who were, at any time during the year of income, capable of controlling the company and whether any of those persons was a public company;

(b) the market value of the shares issued by the company before the end of the year of income;

(c) the number of persons who beneficially owned shares in the company at the end of the year of income; and

(d) any other matters that the Commissioner thinks relevant;

it is reasonable that the company should be treated as a public company for the purposes of subsection (1) in relation to the year of income, the company shall be deemed to be a public company for those purposes in relation to the year of income.

103A(5A)    

The Commissioner may, under subsection (5), form an opinion that it is reasonable that a company should be treated as a public company for the purposes of subsection (1) in relation to a year of income notwithstanding that the forming of such an opinion by the Commissioner would impose on the company a liability to pay a greater amount of income tax than the company would otherwise be liable to pay.

103A(6)    

Notwithstanding anything in the preceding provisions of this section, the Commissioner may treat a company as not being, by virtue of paragraph (2)(a) or (b), a public company for the purposes of subsection (1) in relation to the year of income if the Commissioner is of the opinion that, by reason of:

(a) any provisions in the company's constituent document, or in any contract, agreement or instrument, authorizing the variation or abrogation of the voting rights or rights to dividends in respect of any shares in the company or relating to the conversion, exchange or redemption of any such shares;

(b) any contract, agreement, option or instrument under which a person has power to acquire shares in the company; or

(c) any power or authority in a person in relation to the voting rights or rights to dividends in respect of any shares in the company;

the voting rights or rights to dividends in respect of any shares in the company were, at any time during the year of income, capable of being varied or abrogated in such a manner (notwithstanding that they were not in fact varied or abrogated in that manner) that:

(d) not less than three-quarters of the voting power in the company would have been capable of being exercised by one person or by persons not more than 20 in number;

(e) not less than three-quarters of:

(i) the amount of any dividend paid by the company during the year of income; or

(ii) if more than one dividend was paid by the company during the year of income - the total amount of all the dividends paid by the company during the year of income;

would have been paid to one person or to persons not more than 20 in number; or

(f) in the case where the company did not pay a dividend during the year of income - if a dividend had been paid by the company at any time during the year of income, not less than three-quarters of the amount of that dividend would have been paid to one person or to persons not more than 20 in number.

103A(7)    
For the purposes of this section:

(a) a person, whether or not he or she holds shares in the company concerned;

(b) his or her relatives; and

(c) in relation to any shares in respect of which they are such nominees, his or her nominees and the nominees of any of his or her relatives;

shall be deemed to be one person.