Connected with: control of a partnership, company or trust (except a discretionary trust)



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An entity controls another entity if it or its affiliate (or all of them together):

  • beneficially owns or has the right to acquire beneficial ownership of, interests in the other entity that give the right to receive at least 40% (the control percentage) of any distribution of income or capital by the other entity, or
  • if the other entity is a company, beneficially owns, or has the right to acquire beneficial ownership of, equity interests in the company that give at least 40% of the voting power in the company.

The way in which an entity can directly control a company has been expanded from 2007-08 by replacing the term shares with equity interests. The meaning of an equity interest includes, but is not limited to, a share in a company.


Olivia and Jill conduct a professional practice in partnership. As they each have a 50% interest in the partnership, they each control the partnership. Therefore, the partnership is connected with each partner, and Olivia and Jill are each connected with the partnership.


Joseph is a sole trader. He also owns shares in a company that carry 50% of the voting power in the company. The net value of his CGT assets (apart from the shares in the company) is $3 million. In determining whether he satisfies the maximum net asset value test, Joseph must take into account the net value of his CGT assets ($3 million) and the net value of the company's CGT assets because the company is connected with him. He does not include the market value of his shares in the company in the net value of his CGT assets because this amount is already reflected in the net value of the company's CGT assets.

Between 40% and 50% control

If an entity's control percentage in another entity is at least 40% but less than 50%, the Commissioner may determine that the first entity does not control the other entity if he is satisfied that a third entity (not including any affiliates of the first entity) controls the other entity.

For an entity to be controlled by a third entity, the third entity must also have a control percentage of at least 40% in the entity - that is, it must control the entity in the way described above. In working out the third entity's control percentage, the interests of any affiliates of the third entity are taken into account.

In other words, for the Commissioner to be able to determine that an entity does not control another entity (despite holding at least 40% interest in it) there must be a third entity that has a control percentage (including the interests of any affiliates) of at least 40% in the other entity.

Alternatively, it is possible that both of the entities with a control percentage of at least 40% may control the company if such responsibilities are shared.


Lachlan owns 48% of the shares in Ayoubi Art Supplies. He plays no part in the day-to-day or strategic decision making of the business. Daniel owns 42% of the shares in the company. The remaining 10% of shares are beneficially owned by a third shareholder who does not take part in the management of the business. All shares carry the same voting rights and Daniel makes all day-to-day and strategic decisions for the company. Even though Lachlan owns 48% of the shares in Ayoubi Art Supplies, he would not be taken to control the company if the Commissioner was satisfied that the company is controlled by Daniel.

    Last modified: 28 Jun 2012QC 25888