Private ruling: Determination that one entity does not control another entity
Published: November 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is it the Commissioner's determination that entity C controls entity B and not entity A, or its affiliates, under subsection 328-125(6) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 328-125(6)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Subsection 328-125(6) of the ITAA 1997 states if the control percentage referred to in subsection (2) or (4) is at least 40%, but less than 50%, the Commissioner may determine that the first entity does not control the other entity if the Commissioner thinks that the other entity is controlled by an entity other than, or by entities that do not include, the first entity or any of its affiliates. Subsection 328-125(2) of the ITAA 1997 states an entity (the first entity ) controls another entity if the first entity, its affiliates, or the first entity together with its affiliates: (a) except if the other entity is a discretionary trust - beneficially own, or have the right to acquire the beneficial 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: (i) any distribution of income by the other entity; or (ii) if the other entity is a partnership - the net income of the partnership; or (iii) any distribution of capital by the other entity; or (b) if the other entity is a company - beneficially own, or have the right to acquire the beneficial ownership of, *equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage ) that is at least 40% of the voting power in the company. Subsection 328-125(4) of the ITAA 1997 is not relevant here. In this case the voting rights rest solely with the X class shareholders of Entity B. More than 50% of the X class shares are held by entity C and more than 40% but less than 49% are held by entity A. The control percentage by entity A of entity B is above 40% but lower than 50%. Entity A is wholly owned by Entity D. Entity A and Entity C are not affiliates nor connected entities. Entity C is not a director or shareholder of Entity A or of Entity D. The Commissioner is satisfied that entity A does not control entity B and that entity B is controlled by entity C which has no connection with entity A or its affiliates.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: As outlined in the constitution of entity B, the voting rights rest solely with X class shareholders. | More than 50% of the X class shares are held by entity C and less than 50% but higher than 40% are held by entity A.