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Edited version of private advice
Authorisation Number: 1052382017781
Date of advice: 15 April 2025
Ruling
Subject: Capital gains tax
Question 1
Would Company A and Entity B be connected for the purpose of the $6,000,000 maximum net value asset test as outlined in section 152-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer 1
Yes.
Question 2
If yes, can the Commissioner exercise his discretion to disregard this connection pursuant to subsection 328-125(6) of the ITAA 1997?
Answer 2
Yes.
This ruling applies for the following period:
Income year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
Company A is a trading entity that runs an insurance broking business.
Entity B owns 49% B class shares in Company A.
Company A also has 51% of A class shares on issue to a third party.
The A and B class shares have equal rights in terms of voting at general meetings, receiving dividends and capital distributions upon the company winding up.
When Company A was originally created it was the understanding between all the shareholders that Entity B and Individual B would purely be silent investors and take no part in the actual running of the business.
Individual B has never been a director of Company A and has never taken any part in the running of the business.
The shareholders agreement outlines the responsibilities of all parties involved:
• The Board is responsible for the direction and control of Company A.
• The Board consists of one director, Individual A.
• Individual A holds the power to appoint, remove and replace that director.
• Individual A is the initial sole director and managing director responsible for the day-today operations of Company A.
Individual B is and has been a silent investor since the inception of the company as outlined by the company constitution and shareholders agreement.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 328-125(2)
Income Tax Assessment Act 1997 subsection 328-126(6)