ATO ID 2004/760: Private company held as an investment by a superannuation fund: discretion to treat as public company
Date of decision: 7 April 2004
Year of income: Year ended 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Will the Commissioner exercise his discretion under subsection 103A(5) of the Income Tax Assessment Act 1936 (ITAA 1936) to treat a private company, which is held as an investment by a superannuation fund, as a public company?

Decision
No. The Commissioner will not exercise his discretion under subsection 103A(5) of ITAA 1936 to treat the private company, which is held as an investment by a superannuation fund, as a public company.

Facts
The taxpayer is a private company for income tax purposes. The taxpayer is not listed on the Australian Stock Exchange as it does not satisfy the tests prescribed by the Australian Stock Exchange for listing. The corporate trustee of a complying superannuation fund held all of the interest in the taxpayer. The superannuation fund has 350,000 members. Each member has a contingent interest in the fund.

Reasons for decision
Summary: Subsection 103A(5) of the ITAA 1936 provides the Commissioner with a discretion to treat a private company as a public company for income tax purposes even though the company does not satisfy one or more of the prescribed tests contained in section 103A of the ITAA 1936. The principle features of a public company are: Furthermore, the subsidiary of a public company is treated as a public company. In April 1965, Public Information Bulletin No 3 (PIB No 3) was issued to give some guidance as to how the Commissioner's discretionary powers under section 103A of the ITAA 1936 would be exercised. In relation to an unlisted company, PIB No 3 stated: ... the discretionary power to treat such a company as a public company will be exercised where the company satisfies the tests for listing prescribed by the stock exchanges now operating in Australian capital cities but, for reasons unconnected with income tax, does not wish to have its shares listed. A provision in the articles of association of a company that the directors may refuse to register a transfer of shares will not generally be an obstacle to the exercise of the discretionary power. Subsection 103A(5) of the ITAA 1936 lists certain specific factors that need to be taken into account when determining whether or not the discretion should be exercised. Regard must be had to the following factors: Whilst a company with several hundred shareholders and a paid up capital of $20 million would generally be more likely to be accepted as a public company than a company with 30 shareholders and a small amount of paid up capital, there is no specific quantum of shareholders or paid up capital that is required to have the discretion exercised. Rather, regard must be made to the overall position of the company. The main question to be considered when exercising the discretion is whether the company reasonably falls within the general concept of a public company. In this instance, the company is not considered to fall within the general concept of a public company. Furthermore, the Commissioner will not exercise his discretion to treat the private company as a public company because: Therefore the Commissioner will not exercise his discretion under subsection 103A(5) of the ITAA 1936 to treat the private company as a public company.

Legislative references: Income Tax Assessment Act 1936 section 103A subsection 103A(5)
Case references: Re Coram; Ex parte Official Trustee in Bankruptcy v. Inglis (1992) 36 FCR 250 (1992)109 ALR 353
Other references: Public Information Bulletin No 3
Subject references: Commissioner's discretion Private companies Public companies