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Edited version of private advice
Authorisation Number: 1012623779679
Ruling
Subject: small business concessions
Question 1
Is your child your affiliate for the purposes of section 328-130 of the Income Tax Assessment Act 1997?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You own a parcel of farm land (parcel A).
The farm land is part of a larger farm (parcel B) with the larger farm being owned by a connected entity.
You were gifted parcel A in 19xx under your parent's will.
You farmed all of the land until you became ill in the following years. At this point your child took over.
There was no written agreement but a verbal agreement that your child would lease parcel B. The child would also have free use of parcel A. The verbal agreement was that he would farm the land in accordance with the way you farmed the land.
The land was farmed until 200X when your child became unwell.
Since 200X, the farm land has been leased to an external, un-related third party.
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 2012-13 (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 your child is your affiliate.
Further issues for you to consider
This ruling has not considered your eligibility for the small business concessions. You should ensure that you satisfy the basic conditions and the other conditions relevant for each concession. More information is available in the publication Advanced guide to capital gains tax concessions for small business 2012-13 (NAT 3359), which is available on our website www.ato.gov.au.