Private ruling: Capital Gains Tax
Date of advice: 30 September 2015
Published: November 2015
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the Trust a connected entity of A and B (Partners in the Partnership) as per section 328-125 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: A and B are beneficiaries of the trust. They are also the partners in the partnership which operates a primary production business on the property. The partners in the partnership are A (17%) and B (83%). The property is held in the trust. Any improvements to the land were paid for by the partnership. There is currently no debt secured over the property and the partnership has not paid rent to the trust for the use of the property in its business. The trustees of the trust are C and D. A is the appointor of the trust. At all times the trustees of the trust have allowed A and B full and free use of the property, without seeking to impose any costs or conditions. A as the appointer of the trust has the power to remove any trustee and appoint a new trustee.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Section 328-125 | Income Tax Assessment Act 1997 Section 328-130

Reasons for decision: Summary: An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company. In this case, we accept that B is A's affiliate and A is B's affiliate. 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 first entity) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity its affiliates, or the first entity together with its affiliates. ATO ID 2008/139 (withdrawn) states that if the trust deed of a discretionary trust specifies that the appointor of the trust has the power to remove a trustee and appoint a new trustee, it is considered that the trustee could reasonably be expected to act in accordance with the directions or wishes of the appointor. In this situation, Appointor will control Discretionary Trust under subsection 328-125(3) of the ITAA 1997. Accordingly, A together with their affiliate B controls the trust. The trust is therefore connected with A and B for the purposes of section 328-125 of the ITAA 1997.