Issue
Is a company connected with a discretionary trust within the meaning of paragraph 152-30(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997), if both the company and the discretionary trust are controlled by the same individual?
Decision
Yes. The company is connected with the discretionary trust because the company and the trust are both controlled by the same third party as required by paragraph 152-30(1)(b) of ITAA 1997.
Facts
An individual is the trustee of a discretionary trust.
The individual owns shares in the company that enable the individual to exercise 50 percent of the voting power in the company.
Reasons for Decision
Under subsection 152-30(1) of ITAA 1997, an entity will be connected with another entity if: (a) either entity controls the other entity or (b) both entities are controlled by the same third entity.
An entity controls a company if the entity beneficially owns shares in the company that carry between them the right to exercise, or control the exercise of, at least 40 percent of the voting power in the company (paragraph 152-30(2)(b) of ITAA 1997). An entity controls a discretionary trust if the entity is the trustee of the trust (subparagraph 152-30(2)(c)(i) of ITAA 1997).
As the individual owns shares that carry the right to exercise 50 percent of the voting power in the company the individual controls the company. The individual also controls the discretionary trust as the they are the trustee of the trust.
As both the company and the discretionary trust are controlled by the individual they are connected with each other as per paragraph 152-30(1)(b) of ITAA 1997.