Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-I - Associate entities  

SECTION 820-905   Associate entity  

Meaning of associate entity

820-905(1)  
An entity (the first entity ) that is not an individual is an associate entity of another entity at a particular time if, at that time, the first entity is an *associate of that other entity and at least one of the following paragraphs applies:


(a) that other entity holds an *associate interest of 50% or more in the first entity (see subsections (4) to (8));


(b) the first entity is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of that other entity in relation to:


(i) the distribution or retention of the first entity ' s profits; or

(ii) the financial policies relating to the first entity ' s assets, *debt capital or *equity capital;
whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed entities.

However, this subsection does not apply to the first entity in its capacity as the *responsible entity of a *registered scheme (see subsection (2A)).

820-905(2)  
An entity (the first entity ) that is an individual is an associate entity of another entity at a particular time if, at that time:


(a) the first entity is an *associate of that other entity; and


(b) the first entity:


(i) is accustomed or under an obligation (whether formal or informal); or

(ii) might reasonably be expected;
to act in accordance with the directions, instructions or wishes of that other entity in relation to the first entity ' s financial affairs, whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed entities.

820-905(2A)  
An entity (the first entity ), in its capacity as the *responsible entity of a *registered scheme at a particular time, is an associate entity of another entity at that time if the first entity, in that capacity, is an *associate of that other entity at that time and at least one of the following paragraphs applies at that time:


(a) that other entity holds an *associate interest of 50% or more in the registered scheme (see subsections (4) to (8));


(b) that other entity holds an associate interest of 20% or more in the registered scheme and the first entity, in that capacity, is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of that other entity in relation to:


(i) the distribution or retention of the profits of the registered scheme; or

(ii) the financial policies relating to the assets, *debt capital or *equity capital of the registered scheme;
whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed entities.
Note:

The first entity, in another capacity, may also be an associate entity of an entity under another provision of this section (see also section 960-100 ).

820-905(2B)  


For the purposes of sections 820-910 , 820-915 and 820-920 , if the first entity mentioned in subsection (1) or (2A) is a trust (other than a *public trading trust) or a partnership:


(a) treat the reference in paragraph (1)(a) or (2A)(a) to 50% as instead being a reference to 10%; and


(b) if subsection (2C) applies - treat the other entity mentioned in subsection (1) or (2A) as holding an *associate interest in the first entity mentioned in that subsection of 10%; and


(c) disregard subsection 318(5) of the Income Tax Assessment Act 1936 ; and


(d) if subsection (2D) applies - in determining whether an entity is an *associate of another entity, treat the benefiting entity mentioned in that subsection as being a partner in the partnership.

820-905(2C)  


This subsection applies if:


(a) the other entity mentioned in subsection (1) or (2A) holds an *associate interest in the first entity mentioned in that subsection of less than 10%; and


(b) it is reasonable to conclude that the entity, or one of the entities, who created the circumstance described in paragraph (a) of this subsection did so for the principal purpose of, or for more than one principal purpose that included the purpose of, ensuring that the first entity will not be an *associate entity of the other entity.

820-905(2D)  


This subsection applies if:


(a) a trust (other than a *public trading trust) is a partner in a partnership; and


(b) another entity (the benefiting entity ) benefits under the trust (as determined in accordance with paragraph 318(6)(a) of the Income Tax Assessment Act 1936 ).

820-905(3)  
Subsection (1) or (2A) also has effect as if the first entity satisfies paragraph (b) of that subsection at a particular time if any of the following is expected to act in the manner mentioned in that paragraph at that time:


(a) a director of the first entity if it is a company;


(b) a partner of the first entity if it is a partnership;


(c) the *general partner of the first entity if it is a *corporate limited partnership;


(d) the trustee of the first entity if it is a trust;


(e) a member of the first entity ' s committee of management if it is an unincorporated association or body.

820-905(3A)  
If:


(a) an entity (the first entity ) is an *associate entity of another entity (the head entity ) under subsection (1), (2), (2A) or (3) at a particular time; and


(b) a third entity is also an associate entity of the head entity under subsection (1), (2), (2A) or (3) at that time;

the first entity is an associate entity of the third entity at that time.

820-905(3B)  
If an entity (the first entity ) is an *associate entity of another entity under subsection (1), (2), (2A), (3) or (3A) at a particular time, that other entity is also an associate entity of the first entity at that time.

820-905(3C)  
However, an entity in its capacity as the *responsible entity of a *registered scheme (the responsible entity ) is not an *associate entity of another entity under subsection (3B) at a particular time if, at that time, the responsible entity:


(a) would be an associate entity of that other entity under subsection (3B) (apart from the effect of this subsection); but


(b) is not an associate entity of that other entity under subsection (2A). Associate interest in a company (except a corporate limited partnership)

820-905(4)  
An associate interest that an entity holds in a company (except a *corporate limited partnership) at a particular time is the percentage of the direct control interest (if any) that the entity holds in the company at that time under the provisions applied by subsection (5).

820-905(5)  
For the purposes of subsection (4), provisions of Part X of the Income Tax Assessment Act 1936 are applied with the modifications set out in the following table:


Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item Provisions Modifications
1 Section 350 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section) The section applies for the purposes of this subsection rather than only for the purposes of Part X of the Income Tax Assessment Act 1936
2 Subsections 350(6) and (7) The subsections do not apply

Associate interest in a trust

820-905(6)  
An associate interest that an entity holds in a trust at a particular time is the percentage of the direct control interest (if any) that the entity holds in the trust at that time under the provisions applied by subsection (7).

820-905(7)  
For the purposes of subsection (6), provisions of Part X of the Income Tax Assessment Act 1936 are applied with the modifications set out in the following table:


Modifications of provisions in Part X of the Income Tax Assessment Act 1936
Item Provisions Modifications
1 Section 351 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section) The section applies for the purposes of this subsection rather than only for the purposes of Part X of the Income Tax Assessment Act 1936
2 Subsections 351(3) and (4) The subsections do not apply

Associate interest in a partnership

820-905(8)  
An associate interest that an entity holds in a partnership at a particular time is whichever of the following percentages is applicable, and if there are 2 or more such percentages, the greatest of them:


(a) in the case of a *corporate limited partnership - 100% if the entity is a *general partner of the partnership;


(b) in the case of a partnership that is not a corporate limited partnership - the percentage of the control of voting power in the partnership that the entity has at that time;


(c) in any other case - the percentage that the entity holds, or is entitled to acquire, at that time, of any of the following:


(i) the total amount of assets or capital contributed to the partnership;

(ii) the total rights of partners to distributions of capital, assets or profits on the dissolution of the partnership;

(iii) the total rights of partners to distributions of capital, assets or profits otherwise than on the dissolution of the partnership.

 

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