Controlled private companies 043-04010070

Determining factors:

• a company with 50 shareholders
• each shareholder with 2% of the shares
• all shareholders are associates as they are related
• there are no voting blocs
• there are $5,000,000 assessable assets and $2,000,000 assessable income
• last financial year actual distributions were $1,000 per shareholder

Assessment

The effect of section 1207Q(2) of the Social Security Act 1991 would be that the company would be a controlled private company in relation to all of the individuals as they and their associates (relatives) have 15% or more control. Each of the shareholders would be attributed with 2%, i.e. $100,000 assets and $40,000 income.

Determining factors:

• a company with 50 shareholders
• each shareholder with 2% of the shares
• none are associates
• there are no voting blocs
• there are $5,000,000 assessable assets and $2,000,000 assessable income
• last financial year actual distributions were $1,000 per shareholder

Assessment

The effect of section 1207Q(2) of the Social Security Act 1991 would be that the company would not be a controlled company in relation to any of the individuals as no individual or group of associates have 15% or more control. The net asset backing rules apply, which would result in assets of $100,000 each and actual distributions of $1,000 being assessable.

Special coding

The asset attribution percentage should be 2% each (this will result in the correct net asset backing result). The income attribution percentage should be zero. Ensure the $1,000 distributions are coded and documented.

Determining factors:

• a company with 4 equal (25%) shareholders
• none are associates
• there are no voting blocs
• $200,000 assessable assets and $50,000 assessable income
• last financial year actual distributions were $10,000 per shareholder

Assessment

The effect of section 1207Q(2) of the Social Security Act 1991 would be that the company would be a controlled company in relation to each of the 4 individuals as they all meet the control test. $50,000 assets and $12,500 income would be attributed to each.

Determining factors:

• a company with 10 shareholders
• each shareholder with 10% of the shares
• 8 shareholders are not associates but 2 are associates, as they are relatives
• $200,000 assessable assets and $50,000 assessable income
• last financial year actual distributions were $3,000 per shareholder

Assessment

The effect of section 1207Q(2) of the Social Security Act 1991 would be that the company would not be a controlled private company in relation to the 8 shareholders who are not associates. The company would be a controlled company in relation to the 2 associates as they meet the control test.

The net asset backing rules would be applied to the 8 non-associates. This would still result in $20,000 assets each, however only actual distributions of $3,000 would be assessable. The 2 associates would be determined to be attributed with control and would be attributed $20,000 assets and $5,000 income each.

Special coding

Code the asset attribution percentage as 10% each for all shareholders.

For the 2 associates, code the income attribution percentage as 10%; for the 8 non associates code the income attribution percentage to zero; ensure the $3,000 distributions are coded and documented.

Determining factors:

• a company with 8 shareholders
• each shareholder has 12.5% of the shares
• 3 shareholders are not associates and 5 shareholders are associates (as they are relatives)
• the 5 relatives have been jointly exercising control
• $200,000 assessable assets and $50,000 assessable income
• last financial year actual distributions were $3,000 per shareholder

Assessment

The 5 relatives would be assessed as being the controllers and attributed 20% of the company income and assets each. The effect of section 1207Q(2) of the Social Security Act 1991 would be that the company would be a controlled private company in relation to the 5 associates as they meet the control test.

Because the assets of the company have already been fully attributed, the other 3 shareholders would be attributed zero, however the actual distributions of $3,000 would be assessable.

Special coding

Code the income and assets attribution percentage as 20% for each of the 5 relatives.

Ensure the $3,000 distributions are coded and documented. The distributions to non-controllers are passed as a gift to the controllers' records.

Determining factors:

• a company has 8 shareholders
• each shareholder with 12.5% of the shares
• 3 shareholders are not associates and 5 are associates (as they are relatives)
• the 5 relatives have not been acting as a bloc and as such are not jointly exercising control
• $200,000 assessable assets and $50,000 assessable income
• last financial year actual distributions were $3,000 per shareholder

Assessment

Each customer would be assessed as having 12.5% control, however the effect of section 1207Q(2) of the Social Security Act 1991 would be that the company would not be a controlled private company in respect to the 3 non-associate shareholders as they do not meet the control test. The company would be a controlled company in relation to the 5 associates as they meet the control test. Regardless of whether they are acting together, they are still relatives, and therefore associates, so they meet the control test which provides that they must with associates have at least 15% controlling interest.

The net asset backing rules would be applied to the 3 non-associates. This would still result in $25,000 assets each, however only actual distributions of $3,000 would be assessable. The 5 associates would be determined to be attributed with control and would be attributed $25,000 assets and $6,250 (1/8 of $50,000) income each.

Special coding

Code the asset attribution percentage for all the shareholders as 12.5% each; for the 5 associates code the income attribution percentage to 12.5; for the 3 non-associates code the income attribution percentage to zero, ensure the $3,000 distributions are coded and documented.

Note: for examples 5 and 6, Services Australia may not attribute or otherwise assess more than 100% of the assets of an entity to individuals (whether they be customers or not). Therefore, while the net asset backing method may be used to assess the assets and income of the 3 non-controller, non-associate shareholders in example 6, this is not possible where other controllers in the structure (whether Services Australia customers or not) are attributed with 100% of the structure as is the case in example 5.

Determining factors

• a company has 50 shareholders
• each shareholder has 2% of the shares
• all are associates, as they are related
• there are no voting 'blocs'
• there are:
• $26,200,000 gross assets, and
• $59,000,000 gross operating revenue, and
• 104 employees
• The net assets of the company is $6,200,000
• last financial year actual distributions were $3000 per shareholder

Assessment

This is not a designated private company and is not affected by the post 1 January 2002 new rules.

The net asset backing rules would apply. This would result in $124,000 assets each and actual distributions of $3,000 being assessable.