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Ruling

Subject: Determination that one entity does not control another entity

Question

Is it the Commissioner's determination that entity C controls entity B and not entity A, or its affiliates, under subsection 328-125(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

As outlined in the constitution of entity B, the voting rights rest solely with X class shareholders.

More than 50% of the X class shares are held by entity C and less than 50% but higher than 40% are held by entity A.

Entity A is wholly owned by Entity D.

Entity A and Entity C are not affiliates nor connected entities. Entity C is not a director or shareholder of Entity A or of Entity D.

Assumptions

Nil

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 328-125(6)

Reasons for decision

Detailed reasoning

Subsection 328-125(6) of the ITAA 1997 states if the control percentage referred to in subsection (2) or (4) is at least 40%, but less than 50%, the Commissioner may determine that the first entity does not control the other entity if the Commissioner thinks that the other entity is controlled by an entity other than, or by entities that do not include, the first entity or any of its affiliates.

Subsection 328-125(2) of the ITAA 1997 states an entity (the first entity) controls another entity if the first entity, its affiliates, or the first entity together with its affiliates:

Subsection 328-125(4) of the ITAA 1997 is not relevant here.

In this case the voting rights rest solely with the X class shareholders of Entity B. More than 50% of the X class shares are held by entity C and more than 40% but less than 49% are held by entity A.

The control percentage by entity A of entity B is above 40% but lower than 50%.

Entity A is wholly owned by Entity D. Entity A and Entity C are not affiliates nor connected entities.

Entity C is not a director or shareholder of Entity A or of Entity D.

The Commissioner is satisfied that entity A does not control entity B and that entity B is controlled by entity C which has no connection with entity A or its affiliates.

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