Affiliates

An affiliate is an individual or company that, in relation to their business affairs, acts or could reasonably be expected to act:

• in accordance with your directions or wishes, or
• in concert with you.

Trusts, partnerships and super funds can't be your affiliates. However, a trust, partnership or super fund may have an affiliate who is an individual or company.

Find out about:

• Acting in accordance or in concert
• Spouses and children
• Franchisees and franchisors

Acting in accordance or in concert

A person is not your affiliate merely because of the nature of a business relationship you and the person share. For example, if you're a partner in a partnership, another partner is not your affiliate merely because they act, or could reasonably be expected to act, in accordance with your directions or wishes in relation to the affairs of the partnership.

Similarly, companies and trusts are not affiliates of their directors and trustees respectively, and vice versa, merely because of the positions held.

Whether a person acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, is a question of fact dependent on all the circumstances of the particular case. Relevant factors include:

• the existence of a close family relationship between the parties
• the lack of any formal agreement or formal relationship between the parties dictating how the parties are to act in relation to each other
• the likelihood that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements or legal or fiduciary obligations
• the actions of the parties.

Generally, another business would not be acting in concert with you if they:

• have different employees
• have different business premises
• have separate bank accounts
• do not consult you on business matters
• conduct their business affairs independently in all regards.

Spouses and children

Neither your spouse nor child (that is, your child under 18) is automatically your affiliate. You must consider whether they are acting according to your directions or wishes, or in concert with you, in relation to their business affairs.

However, where you own an asset that your spouse or child uses in a business they carry on as an individual, they will be taken to be your affiliate for the purposes of the:

• active asset test
• $6 million maximum net asset value test, and
• $2 million aggregated turnover test.

Your spouse or child may also be taken to be your affiliate where:

• an asset is owned by you and that asset is used in a business carried on by an entity that your spouse (or child) owns or has an interest in, or
• an asset is owned by an entity that you own or have an interest in, and that asset is used in a business carried on by your spouse (or child), or an entity that your spouse or child has an interest in.

Your spouse or child is treated as your affiliate when working out whether the entity that owns the asset is an affiliate of, or connected with, the entity that uses the asset in their business. If by treating your spouse or child as your affiliate the result is that the business entity is taken to be an affiliate of, or connected with, the entity that owns the asset, then the affiliate rule will also apply to treat the spouse or child as an affiliate of the individual for the purposes of the small business CGT concessions in relation to:

• all the basic conditions for eligibility, and
• calculating aggregated turnover and net asset value.

This rule only applies in relation to eligibility for the small business CGT concessions, and not the other small business entity concessions.

If this second stage of the affiliate rule applies, it will also apply for any gain that arises from any asset that either the asset owner or the business entity, or the individual or their spouse or child, owns. This affiliate rule works both ways, so that the individual is also taken to be an affiliate of their spouse or child. However, it only applies for as long as:

• the person is their spouse or the child is under 18 years, and
• any asset is being passively held.

This affiliate rule for spouses and children also has application for the meaning of active asset.

This affiliate rule applies only if the business entity is not already an affiliate of, or connected with, the asset-owner.

Franchisees and franchisors

Franchisees are not necessarily affiliates of the franchisor simply because of the franchise arrangement. Whether the franchisee acts in concert with the franchisor in respect of their franchise business depends on, among other things, the nature of the franchise agreement between them.

The affiliate relationship does not include the relationship between the 'controller' of an entity and the entity itself. The relationship in these situations is considered to be dictated more by obligations imposed by law, formal agreements and fiduciary obligations. Accordingly, companies, trusts and partnerships are not considered to be affiliates (and vice versa) of the various officers, persons and entities that are related to the company, trust or partnership in various capacities – for example, the trustees and beneficiaries of a trust, the directors and shareholders of a company, and the partners in a partnership.

See also:

• Passively-held assets
• Partner's assets