Issue
Does a company have a 'controlling individual' under subsection 152-55(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if it has different classes of shares in respect of which the directors can choose to make distributions, and at least 50% of each class is held by the same shareholder?
Decision
Yes. A company has a 'controlling individual' under subsection 152-55(1) of the ITAA 1997 if it has different classes of shares in respect of which the directors can choose to make distributions and at least 50% of each class is held by the same shareholder.
Facts
A company has two different classes of shares. One particular shareholder holds at least 50% of the shares of each class. The directors can decide to make a distribution of income or capital to either class of shares to the exclusion of the other class of shares.
Reasons for Decision
Under subsection 152-55(1) of the ITAA 1997 an individual is a 'controlling individual' of a company if they hold 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 the right to receive at least 50% of any distribution of income and capital that the company may make.
Therefore a company can have a 'controlling individual' only if it has an individual shareholder who holds shares that carry between them the right to receive at least 50% of any distribution the company may make.
If a shareholder holds at least 50% of the shares of each class, then regardless of the existence of a discretion to distribute to one class to the exclusion of the other class and how it is exercised, the shareholder will always receive at least 50% of any distribution made.
The group of shares held by the shareholder effectively carry between them the right to at least 50% of any distribution of income or capital made by the company. In these circumstances, the company has a 'controlling individual' under subsection 152-55(1) of the ITAA 1997.