Issue
Do the trustees or the members of a complying superannuation fund 'control' the superannuation fund in the way described in section 152-30 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Neither the trustees nor the members of a complying superannuation fund control the superannuation fund in the way described in section 152-30 of the ITAA 1997.
Facts
The taxpayer, a company, carries on business. Two individuals (husband and wife) each own 50% of the shares in the company. The two individuals are also the only members and the trustees of a complying superannuation fund. The superannuation fund owns all the units in a unit trust which itself owns certain assets, some of which are used in the company's business.
The taxpayer company intends to sell a business asset and seek access to the small business capital gains tax (CGT) concessions in Division 152 of the ITAA 1997. Accordingly, the company must determine whether it satisfies the $5 million maximum net asset value test and, in considering that test, whether the superannuation fund and the unit trust are connected entities.
Reasons for Decision
Under subsection 152-30(1) of the ITAA 1997 an entity is 'connected with' another entity if either entity controls the other entity in the way described in section 152-30 or both entities are controlled in that way by the same third entity.
Under paragraph 152-30(2)(a) of the ITAA 1997, an entity 'controls' another entity if it (together with any small business CGT affiliates) beneficially owns, or has the right to acquire the beneficial ownership of, interests in the other entity that carry between them the right to receive at least 40% of any distribution of income and capital by the other entity.
However, the members of a complying superannuation fund do not beneficially own, or have the right to acquire beneficial ownership of, interests carrying the right to distributions of income or capital. Moreover, a superannuation fund does not distribute income or capital as such, but rather pays benefits on the occurrence of certain events.
Similarly, the trustees of a complying superannuation fund also do not beneficially own, or have the right to acquire beneficial ownership of, interests in the fund carrying the right to receive distributions of income or capital.
Accordingly, neither the trustees nor the members of a complying superannuation fund control the fund under paragraph 152-30(2)(a) of the ITAA 1997. Further, as a complying superannuation fund will not be a discretionary trust, the control rules in paragraph 152-30(2)(c) and subsection 152-30(5) will not apply to make the trustees or the members control the fund. Therefore, neither the trustees nor the members of a complying superannuation fund control the fund in the way described in section 152-30.
In this particular case, although the two individuals both control the taxpayer company under paragraph 152-30(2)(b) of the ITAA 1997 (they both own 50% of the shares in the company), the superannuation fund and the company are not controlled by the same third entity and are therefore not connected under paragraph 152-30(1)(b) because the individuals do not control the fund. On a similar basis, the unit trust and the company are also not connected.
It is also considered that neither the members nor the trustees of a complying superannuation fund are small business CGT affiliates of the fund under paragraph 152-25(1)(b) of the ITAA 1997.
Therefore, although the two individuals both control the company, the superannuation fund itself does not control the company (via the aggregation of its affiliates' interests) under subsection 152-30(2) of the ITAA 1997, because the individuals are not small business CGT affiliates of the fund, and therefore the fund is not connected with the company under paragraph 152-30(1)(a).