Private ruling: Commissioner's discretion - control of entities
Date of advice: 15 January 2025
Published: 17 March 2025
Ruling period: Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: For the purpose of calculating the aggregated turnover of Company B under section 328-115 of the Income Tax Assessment Act 1997 (ITAA 1997), will the Commissioner exercise his discretion under subsection 328-125(6) of the ITAA 1997 to determine that Company C does not control Company B? | A1: Yes. | Q2: For the purpose of calculating the aggregated turnover of Company B under section 328-115 of the ITAA 1997, is the Company C an affiliate of Company B under section 328-130 of the ITAA 1997? | A2: No.

Relevant facts and circumstances: Company A was the holding company of Company B. Company B has fully paid ordinary shares on issue. In the income year ended 30 June 20xx Company C acquired x% equity in Company B. Company A holds the remaining x% equity. A Shareholders Deed was entered into between Company A and Company C to govern the relationship between them as shareholders of Company B. Company B has x Directors, x of whom are Directors and shareholders in Company A. The remaining Director was appointed by Company C. Company B's Constitution provides that the Directors are responsible for managing the business of the company. Issues arising at a meeting of Directors are to be decided by a majority of votes cast by the Directors present. Issues arising at a general meeting are to be decided by a majority of votes or a show of hand. The Shareholders Deed provides that the provisions of the Shareholders Deed will prevail to the extent of any inconsistency with the provisions of the Constitution. Under the Shareholders Deed voting at the Company's general meetings and Board meetings requires a simple majority vote being more than x% of the votes cast or a special majority vote being more than x% of votes cast. Each Shareholder has one vote for each share held and each Director has one vote. Decisions that require a special majority vote are changes to the capital structure, winding up, merger/amalgamation or acquisition. Of the x Directors of Company B, who are also the Directors and shareholders of Company A, one Director is the Chief Operating Officer (CEO) and manages the day-to day operations of Company B with support from other managers and the other 2 Directors. The CEO has authorities delegated by the Board of Directors. The x Director appointed by Company C is not involved in the daily operations and management of Company B. Company B and Company C: • have different employees and different client bases; • have different business premises; • have separate bank accounts; • do not consult with you on business matters; • conduct all business affairs independently and there is no financial interdependency on an on-going basis; • no common flow of revenue; • no close or personal relationship between any key employees and Directors. Company B wishes to access the Research and Development (R&D) tax incentive under subsection 355-100(1) of Division 355 of the ITAA 1997 in the income year ended 30 June 20x1.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 328-115 | Income Tax Assessment Act 1997 section 328-120 | Income Tax Assessment Act 1997 section 328-125 | Income Tax Assessment Act 1997 subsection 328-125(1) | Income Tax Assessment Act 1997 subsection 328-125(2) | Income Tax Assessment Act 1997 subsection 328-125(6) | Income Tax Assessment Act 1997 section 328-130 | Income Tax Assessment Act 1997 section 355-100 | Income Tax Assessment Act 1997 subsection 355-100(1)