Who is an affiliate?
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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 you directions or wishes, or
- in concert with you.
Trusts, partnerships and superannuation funds cannot be your affiliates. However, a trust, partnership or superannuation fund may have an affiliate who is an individual or company.
However, a person is not your affiliate merely because of the nature of a business relationship you and the person share.
For example, if you are a partner in a partnership, another partner is not your affiliate merely because you act, or could reasonably be expected to act, in accordance with their 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 the taxpayer's directions or wishes, or in concert with the taxpayer, is a question of fact dependent on all the circumstances of the particular case. No single factor will necessarily be determinative.
Relevant factors that may support a finding that a person acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer, 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.
In certain circumstances, an individual or entity can be taken to be your affiliate. See Are spouses and children affiliates? and Passively-held assets and Partner's assets.
Bob and Shirley are married. Bob has an events management business with an annual turnover of $1.7 million, and Shirley owns a consultancy business with an annual turnover of $1.8 million.
Bob acts in accordance with Shirley's wishes because he values her consultancy and business expertise - as a result, Bob is Shirley's affiliate because he acts in accordance with her directions and wishes in relation to his business. Shirley will need to count Bob's turnover in working out her aggregated turnover.
However, Shirley is not Bob's affiliate, because she does not act in accordance with his wishes or in concert with him in relation to her own business.
Example: Not affiliates
Matt and Sandy are married and share in the running of their household. Matt owns a cleaning business with an annual turnover of $1.7 million, and Sandy has a bakery with an annual turnover of $1.8 million.
They have nothing to do with each other's businesses. They have:
- separate bank accounts for their businesses
- different business locations
- their own employees.
Neither Matt nor Sandy controls the management of the other's business.
Even though Matt and Sandy are married, neither is an affiliate of the other because they:
- do not act in concert with each other in respect of their businesses, and
- neither acts according to the directions or wishes of the other.
As a result, neither Matt nor Sandy has to include the annual turnover of the other's business in calculating the aggregated turnover of their own business.
Last modified: 28 Jun 2012QC 25888