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Ruling

Subject: Subsection 103A(5) of the Income Tax Assessment Act 1936 - Commissioner's power to treat company as public

Question 1

Is the taxpayer a public company for the purposes of subsection 103A(2) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

Is the Commissioner of the opinion that the taxpayer should be treated as a public company pursuant to section 103A(5) of the ITAA 1936 in respect of the year ended 30 June 2012?

Answer

Yes

Question 3

If the Commissioner deems the taxpayer to be a public company in respect of the year ended 30 June 2012, will the Commissioner continue to exercise his discretion under section 103A(5) with respect to the years ending 30 June 2013 and subsequent if the taxpayer continues to maintain a minimum set of criteria?

Answer

No.

Question 4

If the Commissioner exercises his discretion and deems the taxpayer to be a public company for the purposes of section 103A(1), in respect of the years ended 30 June 2012, 30 June 2013 and 30 June 2014 can section 1O9D of the ITAA 1936 apply to any loans provided by the taxpayer to shareholders (or associates of shareholders) in respect of the years ended years ended 30 June 2012, 30 June 2013 and 30 June 2014?

Answer

No.

This ruling applies for the following periods:

Year of income ended 30 June 2012

Year of income ended 30 June 2013

Year of income ended 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The following facts and the description of the scheme are based on information provided by the applicant. The following documents, or relevant parts of them, form part of and are to be read with these facts and the description of the scheme:

o Private Ruling Application, and

o Applicant's correspondence.

o The shareholder registers for 2009 and 2010 indicate that shareholdings are almost identical to the 2011 register.

o The shareholder register 2011 detailed shareholdings in respect of nominee companies.

o The shareholder register 2009 detailed shareholdings in respect of nominee companies.

o The shareholder register 2010 detailed shareholdings in respect of nominee companies.

o The applicant provided a list of top 20 shareholders in 2011.

The shares held by companies as nominee for the underlying beneficial shareholders were excluded from the count of the 20 largest shareholders by the Applicant. The Applicant stated that these entities were excluded on the basis that it is reasonable to conclude that the underlying beneficial shareholders indicate an average spread of shareholding that amounts to less than the 20 top shareholders. The applicant has supplied information that indicates the average spread of shareholdings amongst the beneficial shareholders.

As at 2011, including the shares held by nominees, the top 20 shareholders of the taxpayer hold over xx% of the shares and dividend, voting and capital distribution rights.

As at 2011, excluding the shares held by nominees, the remaining shareholders held shares that constitute under xx% of the shares and dividend, voting and capital distribution rights.

As at 2011, excluding the shares held by nominees, the top 20 shareholders held approximately xx% of the voting, dividend and capital distribution rights of the taxpayer.

At no stage during the 2009-10 income year did the top 20 shareholders, excluding the shares held by the relevant nominee companies, hold more than xx% of the voting, dividend and capital distribution rights of the taxpayer.

At no stage during the 2008-09 income year did the top 20 shareholders, excluding the shares held by the relevant nominee companies, hold more than xx% of the voting, dividend and capital distribution rights of the taxpayer.

The taxpayer has minimum of three directors (excluding any alternative directors). The directors serve a fixed term and are then re-elected by the shareholders of the taxpayer at its annual general meeting.

The Constitution of the taxpayer requires that it hold an AGM as required by section 250N of the Corporations Act 2001. The taxpayer holds annual general meetings.

The Constitution states that a member has a vote. Each shareholder is provided an opportunity to cast a vote at the AGM and the ability to appoint a proxy.

The taxpayer has a dividend policy.

The Constitution states that:' each share of a class on which the Board resolves to pay a dividend carries the right to participate in the dividend in the same proportion that the amount for the time being paid on the share bears to the total issue price of the share'. The taxpayer has only one class of ordinary shares on issue

The Constitution deals with alterations of share capital. If the Taxpayer issues different classes of shares, or divides issued shares into different classes the rights attached to the shares in any class can only be varied or cancelled with the written consent of at least 75% of the holders of the issued shares effected, or by special resolution at a separate meeting of shareholders. The rights attached to a class of shares are not treated as varied by the issue of further shares of that class.

There are currently no contracts, agreements, options or instruments entered into by the taxpayer that are capable of allowing 20 or fewer persons having 75% or greater control and dividend rights in the taxpayer.

There is no vested power or authority in a person in respect of the voting rights or rights to dividends of the taxpayer which is capable of allowing 20 or fewer persons having 75% or greater control or dividend rights in the taxpayer.

The taxpayer states that currently, 20 or fewer shareholders are capable of: controlling 75% or more of the voting power of the taxpayer, and being entitled to three-quarters or more of the dividends of the taxpayer (whether paid or unpaid).

Annual and half-yearly financial accounts (the financial accounts) are prepared by the taxpayer and are made available to the shareholders of the taxpayer and non-shareholders of the taxpayer. The financial performance, investment strategy and structure details of the taxpayer are publicly available on its website.

The annual financial accounts prepared are 'general purpose financial reports' that are prepared in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) as adopted by the Australian Accounting Standards Board and the Corporations Act 2001.

The financial accounts are also independently audited by a registered company auditor.

The shares in the taxpayer are not listed for quotation on any official list of a stock exchange located in Australia or elsewhere.

The Applicant has stated that the taxpayer largely operates its business in accordance with accepted corporate governance principals consistent with that of a listed public company. In addition, the Applicant has stated that the taxpayer has considered the requirements for listing on the ASX and those requirements in light of its current legal structure, commercial business and governance approval. The Applicant has stated that the taxpayer is in a position to satisfy the majority of the ASX listing requirements.

The taxpayer is not a co-operative company as defined under section 117 of the ITAA 1936.

The taxpayer is not prohibited under its constitution from making distributions to its members or relatives of its members.

The taxpayer is not a mutual life insurance company.

The taxpayer is not a friendly society dispensary.

The taxpayer is not a body established for public purposes and was not constituted by a Commonwealth, State or Territory law.

The taxpayer is not owned by members who would represent a Government body and which has a controlling interest in the taxpayer.

The taxpayer is not a subsidiary of a public company.

Assumptions

The shareholdings will not change materially from those identified in the Registers, and

the conditions under subsection 103A(5) of the ITAA 1936 continue to be satisfied.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 103A

Income Tax Assessment Act 1936 Subsection 103A(1)

Income Tax Assessment Act 1936 Subsection 103A(2)

Income Tax Assessment Act 1936 Subparagraph 103A(2)(d)(iv)

Income Tax Assessment Act 1936 Subsection 103A(3)

Income Tax Assessment Act 1936 Subsection 103A(4)

Income Tax Assessment Act 1936 Subsection 103A(5)

Income Tax Assessment Act 1936 Subsection 103A(6)

Income Tax Assessment Act 1936 Division 7A

Income Tax Assessment Act 1936 Section 109D

Income Tax Assessment Act 1936 Subsection 109D(1)

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

Having regard to the factors stated, on balance, the Commissioner's discretion will be exercised to treat the taxpayer as a public company under subsection 103A(5) of the ITAA 1936 for the year ended 30 June 2012. However, the Commissioner will not exercise the discretion to treat the taxpayer as a public company under subsection 103A(5) of the ITAA 1936 for the years ended 30 June 2013 and 30 June 2014.

Question 1

Detailed reasoning

A private company is defined under subsection 103A(1) of the ITAA 1936 to be a company which is not a public company. Subsection 103A(2) of the ITAA 1936 sets out conditions which determine whether a company is a public company. According to subsection 103A(2) of the ITAA 1936 a company is a public company if:

· the company is listed on the stock exchange in Australia or elsewhere as at the last day of the year of income;

· at all times during the year of income the company was a co-operative company as defined in section 117 of the ITAA 1936;

· the company was not carried on since its formation for the purpose of profit or gain to its individual members and was prohibited by the terms of its constituent document form making any distribution to its members or relatives of its members; or

· the company is a mutual life company, a friendly society dispensary, a body established for public purposes and was constituted by a Commonwealth, State or Territory law, a company whereby a Government or body has a controlling interest, or a subsidiary of a public company.

Presently, the taxpayer does not satisfy any of the conditions in subsection 103A(2) of the ITAA 1936 to be deemed a public company.

Question 2

Detailed reasoning

Just as the status of a company is determined on the facts relating to a particular year of income, the discretion under subsection 103A(5) operates on a year by year basis.

Subsection 103A(5) of the ITAA 1936 provides the Commissioner with a discretion to treat a private company as a public company for income tax purposes even though the company does not satisfy one or more of the prescribed tests contained in section 103A of the ITAA 1936.

The principal features of a public company are:

· that shares in the company (other than fixed rate preference shares) be quoted on the official list of a stock exchange at the end of the income year; and

· that 20 or fewer persons shall not at any time during the year of income own (or have the right to acquire) xx% of the equity capital in the company or have a right to 75% of the voting power or dividends paid (the '20/75% test').

Furthermore, the subsidiary of a public company is treated as a public company.

Subsection 103A(5) of the ITAA 1936 lists certain specific factors that need to be taken into account when determining whether or not the discretion should be exercised. Regard must be had to the following factors:

· the number of persons who were, at any time during the year of income, capable or controlling the company and whether any of them was a public company

· the market value of the shares listed by the company before the end of the year of income

· the number of persons who beneficially owned shares in the company at the end of the year of income; and

· any other matters the Commissioner considers relevant.

Whilst there is no judicial guidance on what effects the facts of a case have on the formation of the Commissioner's opinion under subsection 103A(5) of the ITAA 1936, reference is made to the unanimous decision of the Full Court of the High Court of Australia in Stocks & Holdings (Constructors) Pty Limited v Federal Commissioner of Taxation (1973) 3 ATR 621. The decision affords a wide scope to the operation of subsection 103A(5) of the ITAA 1936, to the benefit of the company seeking the Commissioner's opinion. The Court was asked to consider the operations of subsection 103A(5) when the Commissioner formed his opinion in order to enable additional tax to be imposed on the taxpayer company. Stephen J stated that the contrast between subsection 103A(5) and subsection 103A(6)of the ITAA 1936:

suggests that its' function is not to enable onerous liabilities to be imposed upon a company but, instead, to confer a wide power upon the Commissioner to prevent unforeseen anomalies arising….

His honour went on to state that the provisions operate to:

…take out of the application of the application of onerous sections taxpayers who would otherwise be prejudicially affected by them and they do so when it appears reasonable to the Commissioner that this should occur.

The tests under subsection 103A(5) apply throughout the year of income and at or before the end of the year of income. This ruling is made before the end of the year ended 30 June 2012. In limited circumstances the Commissioner will make assumptions about unknown facts such as future events, and where an assumption is made it must be one that the Commissioner reasonably expects to eventuate. The Commissioner has considered the information provided with the private ruling application. From the information provided, the Commissioner considers it is reasonable to expect that:

· the shareholdings will not change materially from those identified in the Registers, and

· the conditions under subsection 103A(5) of the ITAA 1936 continue to be satisfied,

· throughout the year ended 30 June 2012.

Whilst a company with several hundred shareholders and a paid up capital of $20 million would generally be more likely to be accepted as a public company than a company with 30 shareholders and a small amount of paid up capital, there is no specific quantum of shareholders or paid up capital that is required to have the discretion exercised. Rather, regard must be made to the overall position of the company.

The main question to be considered when exercising the discretion is whether the company reasonably falls within the general concept of a public company.

Application of the Commissioner's Discretion

To help form an opinion on the appropriateness of the application of this discretion, guidance is provided from a number of sources including:

(1) The Legislation itself - subsection 103A(5) of the ITAA 1936;

(2) Canberra Income Tax Circular Memorandum (CITCM) No. 847; and

(3) Public Information Bulletin No 3 (PIB No 3)

The factors highlighted in these documents and their application when considering the use of the Commissioner's discretion under section 103A(5) are summarised in ATO Interpretative Decision 2004/760 Income Tax Private company held as an investment by a superannuation fund: discretion to treat as public company (ATO ID 2004/760).

The number of persons capable or controlling the company and whether any of them was a public company

In exercising his discretion the Commissioner should have regard to the number of entities who were, at any time during the year of income, capable of controlling the company and whether any of those entities were a public company.

The phrase capable of controlling is not defined in the income tax legislation, however, the concept of controlling a company has been considered by the High Court in various Australian tax cases. In WP Keighery Pty Ltd v FC of T (1957) 100 CLR 66, it was held that the control of a company resides in the voting power of its shareholders to carry out a resolution at a general meeting of the company. In British American Tobacco C Ltd v IRC (1942) 29 TC 49, it was held that company A might indirectly control company C through its control of company B which controls company C.

Some useful observations on the meaning of control of and controlling interest were made by Pennycuick J in IR Commrs v Harton Coal C Ltd (in liq) (1960) 39 TC 174, where his Honour said:

It is established that the expression control in relation to a company means the power by the exercise of voting rights to carry a resolution at a general meeting of the company. It is also established that, in the absence of an indication to the contrary in the context in which the word occurs, the persons who possess those voting rights are to be ascertain by reference to the articles of the company and its register of members: see as to those points British-American Tobacco Co Ltd v IR Commrs (1943) AC 335; J Bibby & Sons Ltd v IR Commrs (1945) 29 TC 167; Barclays Bank Ltd c IR Commrs (1959) 3 All ER 140. It appears that form these cases that there is for the present purpose no relevant distinction between the expressions control and controlling interest.

Further, in relation to control of a company, paragraph 55 and 56 of the CITCM 847 discusses the application of subsection 103A(6) of the ITAA 1936, that is, cases where the Commissioner would not treat the company as a public company. These paragraphs state that it would be essential to determine whether by means of:

· provisions in the Memorandum and Articles of Association or other constituent document of the company;

· a contract, agreement, options etc. giving a person a right to acquire shares in the company; or

· a power or authority in a person in relation to voting rights to dividends.

voting or dividend rights can be changed or cancelled, the subsection will apply only if the change or cancellation could result in 20 or fewer persons controlling 75% or more of the voting power in the company or obtaining an entitlement to 75% or more of any dividends paid by the companies during a year of income.

In this case, the taxpayer has only ordinary shares. The information provided with the application indicates that the combined shareholding of the 20 largest shareholders, including the shares held by nominees, amounts to over 75% of the issued ordinary shares with voting, capital and dividend rights.

All ordinary shareholders are entitled to receive dividends as declared from time to time. Based on the shareholding of the taxpayer, more than 75% of the amount of that dividend would have been paid to the largest 20 shareholders.

In addition, the Constitution provides that a member has one vote.

ATO ID 2004/760 refers to Re Wala Wynard Indian Gold Mining Co (1882) 21 Ch D 849, in which the concept of shares being beneficially held was discussed. That is, it was determined that shares cannot be beneficially held unless the persons name is entered into the register of members and the person holds the shares for his own exclusive benefit.

However, in relation to how strictly the 20/75% rule is to be applied, PIB No 3 stated:

It is not proposed to exercise the discretionary power merely on the ground that a company fails by only a small margin to satisfy the "20 persons/75 per cent" tests. Regard will, however, be had to any special circumstances causing the failure.

The taxpayer contends that, as the shares held by nominees were held as nominees for the underlying beneficial shareholders they should be excluded from the count of the top 20 shareholders.

In applying the 20/75% rule, both CITCM 847 and PIB No 3 discuss instances in which a nominee company holds shares in the company seeking the exercise of the discretion under subsection 103A(5). PIB No 3 states:

There are in instances in which a nominee company holds shares in, say, Y Limited which is seeking the exercise of the discretionary power to obtain public company status. In isolated cases, the tracing through the nominee company of the beneficial ownership of the shares in Y limited may facilitate the exercise of the discretionary power.

CITCM 847 goes further to state:

'…, e.g., where it is established that the shares are beneficially owned by a public company or by a number of unrelated individuals, who do not directly hold shares in the company

Therefore tracing through the nominee company, re the beneficial ownership of the shares held by the nominee company, for the purpose of the 20/75% test may allow for the exclusion of the nominee company from the count of the top 20 shareholders.

In this case, the information provided with the application indicates that the underlying beneficial shareholders have on average a spread of shareholding that amounts to less than the 20 top shareholders as identified by the Applicant. The shares held by the nominees may be excluded from the count of the 20 largest shareholdings.

As the taxpayer satisfies the 20 persons 75% test in subsection 103A(3) after excluding nominees from the count of the top 20 shareholders, it is considered that the control of the taxpayer is reasonably widely held, it would support the application to treat the taxpayer as a public company for tax purposes.

The market value of the shares listed by the company

As there is no guidance on the intended operation of this paragraph and the market value of the shares in the taxpayer does not appear to be particularly indicative of either a public or private company, it is considered that this factor is neutral in terms of the Commissioner exercising his discretion to treat the taxpayer as a public company under subsection 103A(5) of the ITAA 1936.

The number of persons who beneficially owned shares in the company at the end of the year of income

ATO ID 2004/760 provides that a company with several hundred shareholders and paid up capital of $20 million would generally be more likely to be accepted as a public company than a company of 30 shareholders and a small amount of paid up capital. However, there is no specific quantum of shareholders or paid up capital that is required to have the discretion exercised. Rather, regard must be made to the overall position of the company.

In this case, the total shareholding in the taxpayer is dispersed amongst beneficial shareholders a number of which are held through nominee companies. The spread of shareholding can be described as fairly widely held and would appear more representative of the share ownership of a public company thus supporting the exercise of the Commissioner's discretion.

Any other matters the Commissioner considers relevant

(i) Canberra Income Tax Circular Memorandum No. 847 (CITCM 847)

CITCM 847 lists matters which need to be considered by the Commissioner in applying the Commissioner's discretion under subsection 103A(5) of the ITAA 1936. If an unlisted company satisfies the 20 persons 75 per cent tests of subsection 103A(3) the discretion may usually be exercised where:

(a)   sufficient paid up capital and wide spread shareholdings to enable the company to obtain a listing;

(b)   a dividend policy consistent with a listed public company;

(c)   the company is not controlled by a family group of shareholders (i.e. the family group do not control more than 50% of the voting power);

(d)   the voting and dividend rights attached to the shares are, in all material respects, comparable with rights normally attached to shares of a listed company; and

(e)   the appointment and rotation of the directors is undertaken in the same manner as it is done in the case of listed companies.

These factors and how they apply to the taxpayer's circumstances are considered below.

(a) the company has a sufficiently large paid-up capital and wide spread of shareholdings to enable it to obtain listing on a stock exchange in an Australian capital city;

The ruling request states that the taxpayer's shareholder base meets the minimum ASX listing requirements of 500 investors with a shareholding worth at least $2,000 or 400 investors with a shareholding of at least $2000, 25% of which are unrelated.

The taxpayer has a structure and operation appropriate for a listed company and a constitution which is consistent with the listing rules. The taxpayer would not satisfy the profits test, however, it would satisfy the assets test. The taxpayer is in a position to satisfy the majority of the ASX listing requirements thus supporting the exercise of the Commissioner's discretion.

(b) the dividend policy of the company is consistent with what might be expected of a listed public company in similar general circumstances to the company;

The taxpayer does have a dividend policy currently in place and the Constitution does outline the taxpayer's general dividend policy.

The taxpayers dividend policy as outlined and as stated in the Constitution would appear fairly indicative of that of a public company.

(c) the company is not controlled by a family group of shareholders, i.e. the family group do not control more than 50 per cent of the voting power;

As previously highlighted, the shares issued in the taxpayer are fairly widely held. As previously stated, the 20 largest parcels of shares (excluding nominee shareholdings) aggregated to less than 75% of the issued ordinary shares with voting, capital and dividend rights.

The Applicant has also indicated that the taxpayer is not controlled by any single person or family group. These features are also representative of a public company and would further support the application of the Commissioner's discretion under subsection 103A(5) of the ITAA 1936.

(d) the voting and dividend rights attached to shares are, in all material respects, comparable with rights normally attached to shares of a listed public company; and

As previously highlighted, the taxpayer has only fully paid ordinary shares which rank equally in all respects.

Some of the main rights and liabilities recorded in the Constitution include:

· the right to vote taxpayer's General Meeting;

· entitlement to receive notice of, attend and vote at Company meetings and receive all documents required to be sent to shareholders under Corporations Law etc;

· entitlement to dividends paid on a share; and

· entitlement to surplus funds upon winding-up of the taxpayer.

The previously described shares characteristics would appear similar to those normally attached to shares of a publicly listed company and would also seem to promote the exercise of the Commissioner's discretion in these circumstances to categorise this entity as a public company for tax purposes.

(e) the appointment and rotation of directors is undertaken in the same manner as is done in the case of listed public companies.

The taxpayer has indicated that the structure of the taxpayer's board is similar to that of a public company. The taxpayer's board of directors comprises three members.

Further detail on the board structure is provided in the Constitution.

This attribute would also seem to support the application of the Commissioner's discretion to treat the taxpayer as a public company for tax purposes.

(ii) Public Information Bulletin No 3

PIB No 3 also provides guidance on when the discretionary powers contained in subsection 103A(5) of the ITAA 1936 will be exercised. The information contained in PIB 3 is similar to CITCM 847.

PIB 3 initially emphasizes on page 6 when considering the application of the Commissioner's discretion to an unlisted company that:

Expressed in very broad terms, the question will be Does the company reasonably fall within the general concept of a public company? The prospects of the discretion being exercised to grant public company status will thus be enhanced if-

(a)   the dividend policy of the company; and

(b)   the dividend and voting rights attached to particular classes of shares,are within the bounds of what could reasonably be expected in the case of a public company.

As previously highlighted in consideration of CITCM 847, the taxpayer possesses a number of attributes resembling those of a public company. The proposed dividend policy from the Constitution and the dividend and voting rights attached to the shares are three such features which appear more indicative of a public company than that of a private company.

PIB 3 also states on page 6 that:

An unlisted company with several hundred shareholders and a paid-up capital of, say, 200,000 would generally be more likely to be accepted as a public company than a company with, say, 100 shareholders and a paid-up capital of 20,000. However, it is not proposed to adopt fixed minima of numbers or amounts, but to look at the overall position.

The taxpayer had issued share capital unrelated shareholders.

As discussed above, the voting and dividend rights attached to the taxpayer's shares are well dispersed amongst its shareholders and can be said to be comparable with rights normally attached to shares of a listed company.

Also, it is noted that the taxpayer has a constitution, holds a public annual general meeting and publishes audited general purpose financial statements.

Although not conclusive in isolation when viewed together these characteristics would seem more reflective of a public company and as such would contribute in forming the opinion that the Commissioner's discretion under subsection 103A(5) of the ITAA 1936 should be exercised.

Conclusion

From the information provided, this entity seemingly possesses a majority of attributes more indicative of a public company than that of a private company, even though the requisite legislative tests to be regarded as such were not met. Therefore, it is recommended and considered reasonable in the current circumstances for the Commissioner to exercise his discretion under subsection 103A(5) of the ITAA 1936 and treat the taxpayer as a public company for the year ended 30 June 2012.

Question 3

Summary

The Commissioner's discretion under subsection 103A(5) of the ITAA 1936 operates to deem a private company to be a public company in relation to a year of income and cannot be extended to subsequent years.

Detailed reasoning

A company would lose its public company status if the 20 persons 75% test is breached. Effectively, if 20 or fewer people have a 75% or greater interest in the ordinary shares, voting rights or dividends of the company, it is considered a private company for taxation purposes.

The test applies throughout the year of income. It is not intended that companies in general should be put upon unnecessary enquiry or expense to establish that the tests have not been breached at any time during each year of income.

It is noted however, in paragraph 42 of the CITCM 847 that:

In some cases, companies have been advised that the discretionary power would be exercised if they satisfy the tests under section 103A throughout a certain period up to the end of the 1965-66 income year. As a general rule, and as a transitional measure, the discretionary power may be exercised if the company establishes that it has made genuine attempts to satisfy the tests throughout the period approved and does, in fact, meet the 20 persons 75% tests as at the end of the 1965-66 income year.(emphasis added)

Further confirmation to the application of this general rule is in paragraph 43 of the CITCM 847 where it states:

special consideration will be required where companies change from 'private' to 'public' during the year of income and have derived income during the year before or after the change took place. These cases will usually fall into two broad categories…..

The second category will include a company which has been assessed as a private company in the past and which is converted into public company. If the exercise of the discretionary power is requested in these cases, it may be exercised where the company satisfies the 20 persons 75% tests throughout the period from the time the issue of shares to the general public is completed up to the end of the year of income and it is evident that the tests will be satisfied throughout succeeding years of income.

As stated in the detailed reasoning in the answer to question 2 above, in limited circumstances the Commissioner will make assumptions about unknown facts such as future events, and where an assumption is made it must be one that the Commissioner reasonably expects to eventuate. The Commissioner has considered the information provided with the private ruling application. From the information provided, the Commissioner considers it is reasonable to expect that:

· the shareholdings will not change materially from those identified in Registers, and

· the conditions under subsection 103A(5) of the ITAA 1936 continue to be satisfied,

· throughout the year ended 30 June 2012. However, the Commissioner's discretion under subsection 103A(5) of the ITAA 1936 only operates to deem a private company to be a public company in relation to a year of income and cannot be extended to subsequent years. Therefore the Commissioner will not exercise his discretion under subsection 103A(5) of the ITAA 1936 for the years ended 30 June 2013 and 2014.

Question 4

Detailed reasoning

Division 7A operates to treat payments, loans and forgiven amounts made by a private company to a shareholder or an associate of a shareholder as dividends.

Pursuant to subsection 109D(1) of the ITAA 1936, a loan will be treated as a dividend where:

(a) a private company makes a loan to a shareholder or associate in a year of income; and

(b) the loan is not fully repaid by the end of that income year; and

(c) Subdivision D does not prevent the private company from being taken to pay a dividend; and

(d) the recipient of the loan is either a shareholder in the private company or an associate of such a shareholder when the loan is made, or a reasonable person would conclude that the loan is made because the recipient has been such a shareholder or associate at some time.

As the Commissioner has deemed the taxpayer to be a public company for the purposes of subsection 103A(1) of the ITAA 1936 in respect to the year ended 30 June 2012, section 109D of the ITAA 1936 does not apply to the taxpayer in respect of the year ended years ended 30 June 2012. For the reasons explained in Question 3 above the Commissioner is unable to exercise the discretion in relation to future years. However, If the Commissioner exercises his discretion and deems the taxpayer to be a public company for the purposes of section 103A(1), at a time in the future, section 109D of the ITAA 1936 would not apply to the taxpayer in respect to any such years.