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Edited version of your written advice
Authorisation Number: 1051498654544
Date of advice: 29 March 2019
Ruling
Subject: Capital gains tax – small business concessions
Question 1
Is Entity A connected with Entity B within the meaning of section 328-125 Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Under s 328-125(1), an entity is "connected with" another entity if:
● either entity controls the other entity, or
● both entities are controlled by the same third entity.
In this case, it is considered that Entity B or Entity A does not control the other entity. Entity B does not have the right to acquire the ownership of, interests in Entity A that carry the right to receive at least 40% of income or capital. The trustee of Entity B does not act or might reasonably be expected to act in accordance with the directions or wishes of Entity A, as considered within the agreement. Also, while it is arguable that Person A controls Entity B, both entities are not controlled by Person A.
Question 2
Is Entity A an affiliate of Entity B within the meaning of section 328-130 of the ITAA 1997?
Answer
No.
An affiliate is an individual or company that, in relation to their business affairs, acts or could reasonably be expected to act:
● in accordance with your directions or wishes, or
● in concert with you.
It is accepted that Entity A does not act or could be reasonably expected to act in accordance with Entity B’s directions or wishes, or in concert with Entity B.
This ruling applies for the following periods:
Year ended 30 June 20xx
Year ended 30 June 20xx
The scheme commences on:
1 July 20xx
Relevant facts and circumstances
You are the Trustee of Entity B.
The gross turnover of Entity B is less than $2 million.
You engaged Entity A to provide services for Entity B’s business. The current shareholders have equal shareholding in Entity A (less than 20%).
The business operates from a shared location. Entity A provides an aggregation service and all commissions are paid to Entity A with shared expenses deducted and then the balance passed on to each trust.
The business services are provided by advisors who use Entity A’s license. Each advisor is solely responsible in hiring their personal support staff and in managing their individual businesses. The advisors are not related.
Person A draws a salary from Entity A as remuneration for managing the day to day operations of Entity A and to ensure that it meets its ongoing compliance requirements. Person A holds one vote as per other directors in Entity A.
Entity B and Entity A entered into a Services Agreement.
There are no other separate agreements among Entity B, Entity A and Person A.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 328-125
Income Tax Assessment Act 1997 section 328-130