Edited version of private advice

Authorisation Number: 1052098688290

Date of advice: 11 April 2023

Ruling

Subject: CGT - small business concessions

Question

Do the children of Individual A and Individual B control the Trust in the manner referred to in subsection 328-125(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No. Based on the way the trustee has acted previously it is the Commissioner's view that the trustee acts, or might reasonably be expected to act, in accordance with the directions or wishes of Individual A and Individual B rather than any of the children. In addition, Individual A and Individual B are the directors and shareholders of the Trustee, and have the final say on all expenditure and any operations of the Trust. As such, the children do not control the Trust in the manner referred to in subsection 328-125(3) of the ITAA 1997.

This ruling applies for the following period:

Year ending XX MM 20XX

The scheme commenced on:

XX MM 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Trust is an Australian resident discretionary trust.

The company is the corporate trustee of the Trust which conducts a primary production business on properties known as Property 1, Property 2, Property 3, Property 4, Property 5, Property 6 and Property 7.

Individual A and Individual B set up the Trust.

Individual A and Individual B are the directors of the corporate trustee and the joint owners of the issued shares in the corporate trustee.

Individual A is responsible for all compliance and governance of the business, including wages, workers compensation and occupational health and safety.

Individual A is the primary contact for the bank, accountant, and lawyer.

Individual A is the primary contact with most businesses the family trades with.

Individual A and Individual B have the final say on any operations of the Trust.

Individual B facilitates family welfare and coordination for business productivity.

Individual A and Individual B have a policy where expenditure under a certain limit is not questioned; however, the spend has to be in accordance with business policy.

Expenditure up to a certain limit must be approved at a weekly meeting. If not settled there, the expenditure request is taken to a monthly working on the business meeting.

Expenses greater than a specified limit require a documented justification and return on investment assessment to be approved at a monthly working on the business meeting by consensus.

Individual A and Individual B have the final say on all expenditure and purchases as well as livestock sales.

Individual A and Individual B's children are:

• Child 1
• Child 2
• Child 3.

Child 1 and their spouse:

•         in an equal partnership conduct a primary production business on property not owned by Individual A and Individual B, and

•         manage the Trust's business on Property 1 and Property 2.

Child 2 and their spouse:

•         together have a 20% interest in partnership with their spouse's parents (who have 80%) in a primary production business on property not owned by Individual A and Individual B, and

•         in a partnership in which they have 50% interest each conduct a primary production business on property not owned by Individual A and Individual B, and

•         Child 2 and their spouse manage the Trust's business on Property 3 and Property 4.

Child 3 and their spouse:

•         in a partnership in which Child 3 has in excess of a 40% share conduct a primary production business on property not owned by Individual A and Individual B, and

•         manage the Trust's business on Property 5, Property 6, and Property 7.

There are effectively separate businesses of the trust being carried on by each of the children on their designated properties, with their respective spouses. However, on the ground the physical layout is as follows:

•         each have livestock owned by the Trust allocated to them on their respective properties which they manage

•         each make their own decisions as to the running of their stock and day to day farming

•         most of the plant and equipment is allocated to each property with some plant and equipment shared, all plant and equipment used to operate the business of the Trust is owned by the Trust

•         they each have access to an overdraft account provided by the Trust to use only for approved purchases relating to their respective properties they manage

•         they do their own cashbooks to measure their respective profits

•         their cashbooks are consolidated at the end of the tax year for the accountant to do the Trust tax return and financials, and

•         every July, they each do their own property budget for the bank on cashbook platinum which is then submitted to Individual A for approval and consolidated into a whole of business budget.

Daily activities on each property are recorded by the children in an excel spreadsheet diary and are linked using one drive that Individual A collates the diaries into a master diary.

A weekly plan of daily tasks for each property is prepared by the children and emailed for Individual A's review at the commencement of the week.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 328-125(3)