Private ruling: Capital gains tax
Date of advice: 15 April 2025
Published: 30 June 2025
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: 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)? | A1: Yes. | Q2: If yes, can the Commissioner exercise his discretion to disregard this connection pursuant to subsection 328-125(6) of the ITAA 1997? | A2: Yes.

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)