Capital gains tax: small business relief - controlling individual of company

Are all the different classes of shares issued by a company taken into account in determining if the shareholder falls within the definition of 'controlling individual' in subsection 152-55(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. All the various classes of shares issued by a company, other than redeemable shares, are taken into account to determine if the shareholder is a 'controlling individual' under subsection 152-55(1) of the ITAA 1997.

A company has two shareholders. One shareholder owns all of the issued ordinary shares which have voting, dividend and capital rights. The other shareholder has been issued a share which has dividend rights only.

No other shares have been issued by the company.

The definition of a 'controlling individual' of a company at subsection 152-55(1) of the ITAA 1997 is as follows: 'An individual is a controlling individual of a company at a time if, at that time, the individual holds the legal and equitable interests in *shares, other than *redeemable shares, that carry (between them) the right to exercise at least 50% of the voting power in the company and receive at least 50% of any *dividend the company may pay and of any distribution of capital the company may make.'

Section 995-1 of the ITAA 1997 contains definitions of terms used in the ITAA 1997. It defines a share as: ' share in a company means a share in the capital of the company, and includes stock'.

Redeemable shares are as: '(a) shares that are liable to be redeemed; or (b) shares that, at the option of the company that issued them, are liable to be redeemed.'

The definition specifically requires the individual to hold '......legal and equitable interest in shares other than redeemable shares that carry (between them)........', therefore all the shares issued by the company, other than redeemable shares, must be taken into account in working out whether and individual is a controlling individual in subsection 152-55(1) of the ITAA 1997, is satisfied.

The dividend only shares issued by the company are not 'redeemable shares', as defined, and therefore will need to be taken into account for the purpose of determining if a shareholder is a controlling individual. (* an asterisked term is defined in the Dictionary starting at section 995-1 of the ITAA 1997)