Private ruling: Capital gains tax - small business concessions - affiliates
Date of advice: 31 October 2025
Published: 15 December 2025
Ruling period: Year ended 30 June 2025
Date scheme commenced: 1 July 2024

Ruling: Q1: Was person A an affiliate of person B in the 2025 financial year as defined in section 328-130 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Was person B an affiliate of person A in the 2025 financial year as defined in section 328-130 of the ITAA 1997? | A2: Yes. | Q3: Was person A connected with the Business Partnership as defined in section 328-125 of the ITAA 1997? | A3: Yes. | Q4: Was person B connected with the Business Partnership as defined in section 328-125 of the ITAA 1997? | A4: Yes. | Q5: Was the Business Partnership an affiliate of person A in the 2025 financial year as defined in section 328-130 of the ITAA 1997? | A5: No. | Q6: Was the Business Partnership an affiliate of person B in the 2025 financial year as defined in section 328-130 of the ITAA 1997? | A6: No.

Relevant facts and circumstances: The Property is owned in partnership (the Property Partnership) by the following individuals: • person A 1/11 • person C - 10/11 • person C is person A's parent. The Business is operated in partnership (the Business Partnership) by the following individuals: • person A X% • person B X% • person C X% • person D X% person B is person A's spouse and person D is person C's spouse. The Business Partnership pays rent to the Property Partnership for the use of the Property in operating the Business. There is no formal agreement or lease agreement in place regarding the use of the property. A formal valuation was not obtained to determine whether the rent paid is at market value. The aggregated turnover of the Business Partnership is more than $2 million. Person A and person B live on the Property in the manager's residence and operate as the onsite managers. Person A and person B make the day to day decisions regarding the operation of the business. Person C and person D occasionally fill in while Person A and person B are away. They supervise bookings, check ins and move into the manager's residence during this time. Large financial decisions are made by all 4 partners. There are no formal meetings held by the partners or records kept of meetings. Decisions are often made in informal settings, for example at family gatherings. The Business Partnership signed an agreement in April 20XX which states that: • person C is now retired from actively working the in the partnership • person D will receive a distribution of the business profits in the form of a salary to a maximum of $XX per annum, in recognition of their contribution to the business • person A and person B will receive a distribution of the business profits in the form of a salary, to a maximum of $XX each per annum, in recognition of the fact that they contribute more time and expertise to the business than person D • Any profits over these amounts will be split equally between all partners A contract was exchanged in June 20XX for the sale of the Property and Business. Settlement occurred in September 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-47 | Income Tax Assessment Act 1997 section 328-125 | Income Tax Assessment Act 1997 section 328-130 Question 1 and 2

Reasons for decision: Summary: Section 328-130 of the ITAA 1997 sets out the meaning of affiliates. An affiliate is an individual or company that, in relation to their business affairs, acts or could reasonably be expected to act: • in accordance with your directions or wishes, or • in concert with you. Trusts, partnerships and superannuation funds cannot be your affiliates. However, a trust, partnership or superannuation fund may have an affiliate who is an individual or company. However, a person is not your affiliate merely because of the nature of a business relationship you and the person share. For example, if you are a partner in a partnership, another partner is not your affiliate merely because they act, or could reasonably be expected to act, in accordance with your directions or wishes in relation to the affairs of the partnership. Similarly, companies and trusts are not affiliates of their directors and trustees respectively, and vice versa, merely because of the positions held. Whether a person acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer, is a question of fact dependent on all the circumstances of the particular case. No single factor will necessarily be determinative. Relevant factors that may support a finding that a person acts, or could reasonably be expected to act, in accordance with the taxpayer's directions or wishes, or in concert with the taxpayer, include: • the existence of a close family relationship between the parties • the lack of any formal agreement or formal relationship between the parties dictating how the parties are to act in relation to each other • the likelihood that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements or legal or fiduciary obligations • the actions of the parties. Generally, another business would not be acting in concert with you if they: • have different employees • have different business premises • have separate bank accounts • do not consult you on business matters Deemed affiliates Subsection 152-47(1) of the ITAA 1997 applies to deem a spouse or child an affiliate of an entity if: • one entity (the asset owner) owns a CGT asset (whether the asset is tangible or intangible); and • either: - the asset is used, or held ready for use, in the course of carrying on a business in an income year by another entity (the business entity); and - the asset is inherently connected with a business that is carried on in an income year by another entity (the business entity);and • the business entity is not (apart from this section) an affiliate of, or connected with, the asset owner. Under subsection 152-47(2) of the ITAA 1997, in determining whether the business entity is an affiliate of, or is connected with, the asset owner, a spouse or child of the individual is taken to be an affiliate of an individual. If an entity is an affiliate of another entity as a result of subsection 152-47(2) of the ITAA 1997, then the spouse or child is, in addition, taken to be an affiliate of the individual for the purposes of section 328-125 of the ITAA 1997. | Detailed Reasoning - Application to your circumstances: In this case, a family relationship exists between person A and person B as they are each other's spouse. Person A and person B live on the Property in the manger's residence and make the day-to-day decisions in regards to the operation of the business. While there is a partnership agreement between the relevant parties, it only deals with the remuneration each are entitled to receive. There is no formal agreement or lease agreement in place regarding the use of the property and the rent paid is not at market value. It has been advised that when person A and person B are away on holidays, person C and person D occupy the manager's residence and take over the operations for their period of leave. Further, business decisions are sometimes made in informal settings, like family gatherings and there is no formal documentation prepared. We consider this demonstrates that the way the parties act, or could reasonably be expected to act, in relation to each other would be based on the relationship between the parties rather than on formal agreements or legal or fiduciary obligations Note that a mere shared business relationship between partners does not make one party an affiliate of another, however in this case there is also a close family relationship between the parties and a lack of formal agreement dictating how the parties are to act in relation to each other. We consider that based on the information provided, person A and person B could reasonably be expected to act in accordance with each other's directions or wishes (or concert with one another) in relation to the operation of the business. Therefore, we consider that person A and person B are affiliates under section 328-130 of the ITAA 1997. | Detailed Reasoning - Reasons for decision: Subsection 328-125(1) says that an entity is connected with another entity if: (a) either entity controls the other entity in a way described in this section; or (b) both entities are controlled in a way described in this section by the same third entity. An entity (the individual) controls another entity (the Business Partnership) if the first entity, its affiliates or the first entity together with its affiliates own, or have the right to acquire the ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage) that is at least 40% of the net income of the partnership. | Detailed Reasoning - Application to your circumstances: Person A and person B each hold a X% interest in the Business Partnership. As person A and person B are affiliates, they together hold a X% interest in the Business Partnership. Therefore, person A and person B are connected with the Business Partnership. | Detailed Reasoning - Reasons for decision: As discussed above, an affiliate is an individual or company that, in relation to their business affairs, acts or could reasonably be expected to act: • in accordance with your directions or wishes, or • in concert with you. Trusts, partnerships and superannuation funds cannot be your affiliates. However, a trust, partnership or superannuation fund may have an affiliate who is an individual or company.