ATO Interpretative Decision
ATO ID 2003/348 (Withdrawn)
Income Tax
CGT: small business concessions - controlling individual - different share classes - same shareholderFOI status: may be released
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This ATO ID is withdrawn as the ATO view on this matter is now reflected in the publication Advanced guide to capital gains tax concessions for small business.This document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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does a company have a 'controlling individual' under subsection 152-55(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if it has different classes of shares in respect of which the directors can choose to make distributions, and at least 50% of each class is held by the same shareholder?
Decision
Yes. A company has a 'controlling individual' under subsection 152-55(1) of the ITAA 1997 if it has different classes of shares in respect of which the directors can choose to make distributions and at least 50% of each class is held by the same shareholder.
Facts
A company has two different classes of shares. One particular shareholder holds at least 50% of the shares of each class. The directors can decide to make a distribution of income or capital to either class of shares to the exclusion of the other class of shares.
Reasons for Decision
Under subsection 152-55(1) of the ITAA 1997 an individual is a 'controlling individual' of a company if they hold 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 the right to receive at least 50% of any distribution of income and capital that the company may make.
Therefore a company can have a 'controlling individual' only if it has an individual shareholder who holds shares that carry between them the right to receive at least 50% of any distribution the company may make.
If a shareholder holds at least 50% of the shares of each class, then regardless of the existence of a discretion to distribute to one class to the exclusion of the other class and how it is exercised, the shareholder will always receive at least 50% of any distribution made.
The group of shares held by the shareholder effectively carry between them the right to at least 50% of any distribution of income or capital made by the company. In these circumstances, the company has a 'controlling individual' under subsection 152-55(1) of the ITAA 1997.
Date of decision: 1 April 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
subsection 152-55(1)
Keywords
Capital gains
CGT small business relief
Controlling individual test
Small business retirement exemption
ISSN: 1445-2782
| Date: | Version: | |
| 1 April 2003 | Original statement | |
| You are here | 11 March 2005 | Archived |