Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-45 - RULES FOR PARTICULAR INDUSTRIES AND OCCUPATIONS  

Division 328 - Small business entities  

Subdivision 328-C - What is a small business entity  

Operative provisions

SECTION 328-125   Meaning of connected with an entity  

328-125(1)    
An entity is connected with another entity if:

(a) either entity controls the other entity in a way described in this section; or

(b) both entities are controlled in a way described in this section by the same third entity.

Note 1:

See Subdivision 106-B if a CGT asset of yours is vested in a trustee in bankruptcy or a liquidator.

Note 2:

See Subdivision 106-C if you are absolutely entitled to a CGT asset as against the trustee of a trust.

Note 3:

See Subdivision 106-D if you provided security over an asset to another entity.

Direct control of an entity other than a discretionary trust

328-125(2)    
An entity (the first entity ) controls another entity if the first entity, its *affiliates, or the first entity together with its affiliates:

(a) except if the other entity is a discretionary trust - own, or have the right to acquire the ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage ) that is at least 40% of:

(i) any distribution of income by the other entity; or

(ii) if the other entity is a partnership - the net income of the partnership; or

(iii) any distribution of capital by the other entity; or

(b) if the other entity is a company - own, or have the right to acquire the ownership of, *equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage ) that is at least 40% of the voting power in the company.

Direct control of a discretionary trust

328-125(3)    
An entity (the first entity ) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity, its *affiliates, or the first entity together with its affiliates.

328-125(4)    
An entity (the first entity ) controls a discretionary trust for an income year if, for any of the 4 income years before that year:

(a) the trustee of the trust paid to, or applied for the benefit of:

(i) the first entity; or

(ii) any of the first entity ' s *affiliates; or

(iii) the first entity and any of its affiliates;

any of the income or capital of the trust; and

(b) the percentage (the control percentage ) of the income or capital paid or applied is at least 40% of the total amount of income or capital paid or applied by the trustee for that year.

Note:

Section 328-112 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007-08, 2008-09, 2009-10 and 2010-11 income years.

328-125(5)    
An entity does not control a discretionary trust because of subsection (4) if the entity is:

(a) an *exempt entity; or

(b) a *deductible gift recipient.

Commissioner may determine that an entity does not control another entity

328-125(6)    
If the control percentage referred to in subsection (2) or (4) is at least 40%, but less than 50%, the Commissioner may determine that the first entity does not control the other entity if the Commissioner thinks that the other entity is controlled by an entity other than, or by entities that do not include, the first entity or any of its *affiliates.

Indirect control of an entity

328-125(7)    
This section applies to an entity (the first entity ) that directly controls another entity (the second entity ) as if the first entity also controlled any other entity that is directly, or indirectly by any other application or applications of this section, controlled by the second entity.

328-125(8)    
However, subsection (7) does not apply if the second entity is an entity of any of the following kinds:

(a) a company *shares in which (except shares that carry the right to a fixed rate of *dividend) are listed for quotation in the official list of an *approved stock exchange;

(b) a *publicly traded unit trust;

(c) a *mutual insurance company;

(d) a *mutual affiliate company;

(e) a company (other than one covered by paragraph (a)) all the shares in which are owned by one or more of the following:

(i) a company covered by paragraph (a);

(ii) a publicly traded unit trust;

(iii) a mutual insurance company;

(iv) a mutual affiliate company.