Issue
Is a company, that is wholly owned by members of the primary individual's family, required to make an interposed entity election pursuant to subsection 272-85(1) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936), to be a member of the primary individual's family group?
Decision
No. A company which is wholly owned by members of the primary individual's family, is considered to be a member of the family group pursuant to subsection 272-90(5) of Schedule 2F to the ITAA 1936.
Facts
A trustee of a trust has made a family trust election which is in force.
Company A has not made an interposed entity election.
The primary individual's parents own all the shares in Company A, having fixed entitlements to all the income and capital of the company pursuant to section 272-10 of Schedule 2F to the ITAA 1936.
Reasons for Decision
Subsection 272-90(4) of Schedule 2F to the ITAA 1936 states that: a company, partnership or trust is a member of the primary individual's family group in relation to the conferral or distribution if: (a) the company, partners or trustee has made an interposed entity election to that effect; and (b) the election is in force when the conferral takes place or the distribution is made.
However, pursuant to subsection 272-90(5) of Schedule 2F to the ITAA 1936, a company, partnership or trust will be regarded as a member of the primary individual's family where: (a) the primary individual; or (b) one or more members of the primary individual's family; or (c) the trustees of one or more family trusts, provided the primary individual is specified in the family trust election of each of those family trusts;
or any combination of the above, have fixed entitlements directly or indirectly, and for their own benefit to all of the income and capital of the company, partnership or trust.
The term 'family' of the individual specified in the family trust election (the 'test individual'), as defined in section 272-95 of Schedule 2F to the ITAA 1936 includes: (a) any parent, grandparent, brother, sister, nephew, niece, child, or child of a child of: (i) the test individual; or (ii) the test individual's spouse; (b) the spouse of the test individual or of anyone who is a member of the test individual's family because of paragraph (a).
As the parents of the individual specified in the family trust election have fixed entitlements directly or indirectly, and for their own benefit, to all of the income and capital of Company A, Company A is considered to be a member of the family group for the purposes of subsection 272-90(5) of Schedule 2F to the ITAA 1936 without being required to make an interposed entity election.