ATO Interpretative Decision
ATO ID 2002/813
Income Tax
Capital gains tax: small business relief - controlling individual of companyFOI status: may be released
This version is no longer current. Please follow this link to view the current version. |
-
This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are all the different classes of shares issued by a company taken into account in determining if the shareholder falls within the definition of 'controlling individual' in subsection 152-55(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. All the various classes of shares issued by a company, other than redeemable shares, are taken into account to determine if the shareholder is a 'controlling individual' under subsection 152-55(1) of the ITAA 1997.
Facts
A company has two shareholders. One shareholder owns all of the issued ordinary shares which have voting, dividend and capital rights. The other shareholder has been issued a share which has dividend rights only.
No other shares have been issued by the company.
Reasons for Decision
The definition of a 'controlling individual' of a company at subsection 152-55(1) of the ITAA 1997 is as follows:
'An individual is a controlling individual of a company at a time if, at that time, the individual holds the legal and equitable interests in *shares, other than *redeemable shares, that carry (between them) the right to exercise at least 50% of the voting power in the company and receive at least 50% of any *dividend the company may pay and of any distribution of capital the company may make.'
Section 995-1 of the ITAA 1997 contains definitions of terms used in the ITAA 1997. It defines a
share
as:
'
share
in a company means a share in the capital of the company, and includes stock'.
Redeemable shares are as:
'(a) shares that are liable to be redeemed; or
(b) shares that, at the option of the company that issued them, are liable to be redeemed.'
The definition specifically requires the individual to hold '......legal and equitable interest in shares other than redeemable shares that carry (between them)........', therefore all the shares issued by the company, other than redeemable shares, must be taken into account in working out whether and individual is a controlling individual in subsection 152-55(1) of the ITAA 1997, is satisfied.
The dividend only shares issued by the company are not 'redeemable shares', as defined, and therefore will need to be taken into account for the purpose of determining if a shareholder is a controlling individual.
Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subsection 152-55(1)
section 995-1
Keywords
Basic conditions for relief
Capital Gains Tax
CGT small business relief
Controlling individual test
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 6 December 2001 | Original statement |
| 11 March 2005 | Archived |