Issue
Does a person who has the power to remove the trustee of a discretionary trust and appoint a new trustee, control the trust for the purposes of subsection 328-125(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. A person who has the power to remove the trustee of a discretionary trust and appoint a new trustee, controls the trust for the purposes of subsection 328-125(3) of the ITAA 1997.
Facts
The terms of the trust deed of Discretionary Trust specify that Appointor has the power to remove any trustee and appoint a new trustee.
Reasons for Decision
For the purposes of the small business concessions, an entity is connected with another entity if either entity controls the other entity in certain ways (paragraph 328-125(1)(a) of the ITAA 1997).
Subsection 328-125(3) of the ITAA 1997 provides that an entity will control a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the entity, its affiliates or the entity together with its affiliates.
If the trust deed of a discretionary trust specifies that the appointor of the trust has the power to remove a trustee and appoint a new trustee, it is considered that the trustee could reasonably be expected to act in accordance with the directions or wishes of the appointor. In this situation, Appointor will control Discretionary Trust under subsection 328-125(3) of the ITAA 1997.