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Edited version of private advice
Authorisation Number: 1052218061544
Date of advice: 20 February 2024
Ruling
Subject: CGT - small business concessions
Question
Has Entity A been an affiliate of Entity B from November 20XX to July 20XX?
Answer
Yes. Entity A is considered to be an affiliate of yours under section 328-130 of the ITAA 1997. On the basis of your close family relationship with its directors and shareholders, its dependency on the use of your land and labour at below market value, and your involvement in its business decisions, it is reasonably expected that Entity A would act in accordance your directions or wishes, or in concert with you in relation to the affairs of its business.
This ruling applies for the following period:
30 June 2024
30 June 2025
The scheme commenced on:
1 July 2023
Relevant facts and circumstances
Partnership A is an equal X% partnership of a number of discretionary trusts. Individual A and his three adult children (Individual B, Individual C and Individual D) each control one of the discretionary trusts. The discretionary trust controlled by Individual B is Entity B.
Partnership A holds farming land (including a residential property) and two commercial properties, which were acquired between November 20XX and September 20XX.
The farming land and one of the commercial properties is informally leased to Entity A, and has been actively used in its trading business since the date of purchase.
From November 20XX, the shares in Entity A were owned directly 25% each by Individual A, Individual B, Individual C and Individual D. In July 20XX, Individual B sold his 25% of the shares in Entity A Ltd to his mother.
The use of the farming land and commercial property is an integral part of the Entity A business operations.
Individual B was involved in the significant decisions of Entity A and Partnership A from November 20XX to July 20XX.
Entity B (and the other discretionary trusts involved in Partnership A) allow Entity A to use the partnership assets in its trading business as they act in the best interest of the group overall. Business decisions are made for the benefit of the group as a whole.
Individual B's involvement with the business carried on by Entity A is as follows:
HR related contributions including the hiring/ firing of staff, sourcing and education of apprentices, weekly management meetings with other directors and senior management.
Research and acquisition of plant and equipment as required for the business.
The oversight of tenders for large, wholesale contracts.
Manager of day to day operations and decision making of the retail and wholesale divisions and they key individual for growing the wholesale division of the business making up a third of the total business.
Liaising with customers daily with orders and quality control as well as HACCP control.
Remodelled and updated the store front including the installation of a new computer system in the processing room to improve efficiency.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 328-125
Income Tax Assessment Act 1997 section 328-130