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Ruling

Subject: CGT - Small business concessions

Question

Is X your affiliate for the purposes of section 328-130 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You own land which is mainly used for private purposes including your principal place of residence.

You purchased the land in the year X as joint tenants with your late spouse.

You acquired your late spouse's share of the land in the particular income year.

Your child, X, is over 18 years of age.

X began conducting a business on a portion of the land as a sole trader in the subsequent income year.

You have assisted X with the business by providing initial and ongoing financial support. You have assisted X to prepare financial information for the business including business activity statements, income tax preparation and bank negotiations.

When you provided funding for the business it was under a 'loose' informal arrangement with no legal obligation to be paid back. You are not expecting or requesting the funds to be repaid.

Initially X had use of the land without paying any rent.

In the recent income year, a company was established and the business is now run through the company.

X is the sole shareholder of the company. X is also a director of the company.

You are a director and the public officer of the company.

While X runs the day-to-day business on their own, they consult you in relation to various business related decisions such as the credit-worthiness of customers, the timing of stock orders to ensure the income matches the expenditure of the business and to ensure the overdraft limits are not reached.

There are no formal agreements between you and X and you are not remunerated in any way for the services you provide to the business.

Since the company was incorporated, it has paid you an amount per week being market rental rent for the land.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 328-130(1)

Reasons for decision

An affiliate is an individual or a company that, in relation to their business affairs, acts or could be reasonably expected to act in accordance with your directions or in concert with you. The Advanced guide to capital gains tax concessions for small business 2010-11 (NAT 3359), provides a number of relevant factors that may support a finding that a person is an affiliate of a taxpayer:

· 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, and

· the actions of the parties.

After consideration of the facts and circumstances in this case, including the lack of formal agreements, the close family relationship and the actions of the parties it is accepted that X is your affiliate.

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