Private ruling: Affiliates
Date of advice: 23 March 2026
Published: 18 May 2026
Ruling period: Year ending 30 June 202X | Year ending 30 June 202X
Date scheme commenced: 1 July 202X

Ruling: Q1: Is the Company an affiliate of you as defined by the meaning of affiliate under section 328-130 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: Background You acquired a property jointly with your late spouse (Person A) at the Property. You sold the Property to Person B. The market value of the property at the time of sale was recorded. The transaction formed part of succession planning and the consideration was payment of all costs associated with the transfer. After the sale, you moved to a separate Property. The Property At the time of acquiring the Property you and Person A obtained finance. The Property includes a house and land. The house was the main residence of you (and Person A prior to their death) during the period of ownership. At the time of Person A's death, you became the sole owner of the Property. You have remained the sole owner of the Property from Person A's death until the sale date. At the time of sale, there were no current loans or property caveats, securities. Business Activities From shortly after the Property was acquired, it was used by the Partnership to operate a business. You and Person A held an equal portion and Person B held the remaining portion of ownership in the Partnership. The Partnership continued operating the business until you and Person A's retirement date. From the retirement date, the business was operated by Person B as a sole trader. Afterwards, Person B established the Company. Shares in the Company are owned in equal shares by Person B and their spouse. Person B is the sole director of the Company. The Company has continuously operated the business from the Property from the Company's start date to present. The Company also utilises another property in running its business, however the Property is the main base of the Company's business operations. Relationship between you and the Company There is no formal lease agreement between you and the Company for the Company's occupation and use of the Property in operating the Company's business. Given the relationship between you and Person B as director of the Company, it was considered unnecessary to document the terms of the agreement. The Company does not currently pay rent to you for the use of the Property. Person B met with you on a daily basis, upon their arrival at the Property to discuss the business activities. You and Person B regularly discussed and reached agreement on the use of the Property in operating the primary production business, including: • The intended usage of different parts of the Property in running the Business. Person B would discuss these matters with you to ensure that you are comfortable with these decisions and that you agree that the decisions are in the best interests of the Property, and • seeking guidance and input into business decisions and the use of the land in running the business. Given your extensive experience both in the local area and the business activities in general, this experience and advice is essential to ensure that the Company can operate the business in the most efficient manner, in a way that does not impact on the long-term interests on the land. As the owner of the Property, you had the ultimate say in whether a proposed action or activity is to be undertaken on the Property. Proposed transaction You are assessing whether you satisfy the small business CGT concessions in relation to the sale of the Property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 328-130 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: Subsection 995-1(1) of the ITAA 1997 provides that 'affiliate' has the meaning given by section 328-130 of the ITAA 1997. Under subsection 328-130(1) of the ITAA 1997, an individual or company is an affiliate of another entity if the individual or company acts, or could reasonably expected to act, in accordance with that entity's directions or wishes, or in concert with that entity, in relation to the affairs of the business. Subsection 328-130(2) of the ITAA 1997 provides that however, an individual or company is not an affiliate merely because of the nature of a business relationship. Meaning of could reasonably be expected To determine if the two entities are affiliates, consideration is required as to whether they could reasonably be expected to act in concert in respect to the affairs of the first entity. The Full High Court, in Commissioner of Taxation (Cth) v Peabody [1994] HCA 43, held that the phrase 'might reasonably be expected' requires more than a possibility. An entity, the first entity, 'could reasonably be expected' to act in accordance with another entity's, the second entity's, wishes where the second entity has a relationship of control or influence over the first entity. Such a relationship can be evidenced by the entities' behaviours and the presence of any influential relationships, such as: (a) family or other close personal relationships; (b) financial relationships and dependencies; and (c) relationships created through links such as common directors, partners or shareholders. Conversely, the entities' behaviours, obligations to each other and external parties, and their own interests may evidence the lack of such a relationship. For a company, this relationship depends on whether the majority shareholders and/or directors of the company can reasonably be expected to act in accordance with another entity's directions. Meaning of in concert The term 'in concert' is not defined in the ITAA 1997 and therefore takes its ordinary meaning in the context of Subdivision 328-C of the ITAA 1997. For the purposes of section 3287-130 of the ITAA 1997, entities will be acting in concert where they act together in a coordinated or organised way in pursuit of a common purpose or objective in relation to the affairs of the business. The Macquarie dictionary (Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au) relevantly defines the phrase 'in concert' to mean: 6. in concert, a. in a coordinated or organised way; together. This ordinary meaning suggests that the term 'in concert' is used in the affiliate definition to describe entities that cannot be seen as independent of each other because of the degree to which their business activities are combined or organised together. The term 'in concert' was considered in Re Excellar Pty Ltd and Federal Commission of Taxation 2015 ATC 10-391 where Senior Member Lazanas stated, at ATC 6699: 75. I agree with the authorities that a director or shareholder is not a small business CGT affiliate of the relevant company merely because of the office they hold or the formal relationship they have with the company and that the definition of "small business CGT affiliate" requires something more than, or different to, those relationships that are dictated by legal requirements, fiduciary duties and the like. ... and, at ATC 6700: 76. Excellar contended that the phrase "in concert with" was incorrectly treated as being synonymous with "control" in the tax cases referred to above and they should not be followed. I disagree. The meaning of the phrase "to act in concert with" has been held (in non-tax contexts) to mean "at least an understanding between the parties as to their common purpose or object: Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Co Ltd (No 4) [1985] 1 Qld R 127 . Consistent with these views and the ordinary meaning of the phrase, an entity will be viewed as acting in concert with another entity where it and the other entity act together in pursuit of a common purpose or goal. In the context of the definition of affiliate in section 328-130 of the ITAA 1997, that purpose or goal must be in relation to the affairs of the business of the individual or company. In determining whether two entities are acting in concert for the purpose of the affiliate rules, paragraph 2.36 of the Explanatory Memorandum to the Tax Laws Amendment (Small Business) Bill 2007 , which introduced the definition of 'affiliate', states: 2.36 The following factors may have a bearing on whether an individual or company is an affiliate of an entity to the extent that they show that two or more entities are acting in concert: • family or close personal relationships; • financial relationships or dependencies; • relationships created through links such as common directors, partners, or shareholders; • the degree to which the entities consult with each other on business matters; or • whether one of the entities is under a formal or informal obligation to purchase goods or services or conduct aspects of their business with the other entity. 2.37 None of these factors are determinative in their own right. Importantly, in accordance with subsection 328-130(2) of the ITAA 1997, the nature of business relationships is not relevant to these considerations. In relation to application of subsection 328-130(2) of the ITAA 1997 to companies, the Explanatory Memorandum to Tax Laws Amendment (Small Business) Bill 2007 further clarifies that view by stating as follows: 2.39 Similarly, an individual or company is not automatically an affiliate merely because of a business relationship [Schedule 1, item 1, subsection 328-130(2) of the ITAA 1997]. For example, co-directors, co-trustees or partners are not necessarily affiliates. Also, directors are not automatically affiliates of the company of which they are a director, nor would the company automatically be an affiliate of the directors. Relevantly, in the context of companies, the strategic decision-making process made in a company should be considered to confirm which entity controls the company, and as a result, has influence on the company's acts. Application to your circumstances You owned the Property that was used to conduct a business for more than XX years. The business was initially operated through a partnership. Afterwards, Person B established the Company which operated on the Property. The Company continued to conduct its business primarily on the Property. You do not own any shares in the Company. There is no formal lease arrangement in place, and the Company uses the Property without paying rent. You lived on the Property and had daily interaction with Person B, a director of the Company. The Company consulted with you regularly about business activities and the use of the land, and you retain ultimate authority over whether business activities may be undertaken on the Property. In determining whether the Company is your affiliate for the purposes of section 328-130 of the ITAA 1997, the key issue is whether the Company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or whether you and the Company act in concert in relation to the affairs of the Company's business. This is demonstrated through your contentions that Person B's daily interaction, operational discussions on whom they act in accordance with your wishes in relation to the use of the Property as the landowner. Person B seeks guidance and input on business decisions and use of the land, utilising your experience. Overall, there is a pattern of acting in concert between you and the Company. Additionally, there was no lease arrangement as there was a long-standing business operation and relationship that demonstrated your intention that they act in accordance with your wishes. Based on the ongoing cooperative conduct, your decisive influence over the lands use, and the Company's reliance on your agreement and input in relation to its business activities, the Company is considered to be your affiliate.