AAT case gives insight into control considerations for SMSFs and structures involving related parties

17 January 2014 Topics: Superannuation, Tax and revenue

Gutteridge and Commissioner of Taxation [2013] AATA 947 provides some valuable insights into when a person may be deemed to ‘control’ an entity, even if the person is not a director or shareholder of the entity. While the case was concerned with ‘control’ in the context of small business CGT concessions, self-managed superannuation fund (SMSF) trustees and their advisers should take particular note, as the factors considered in Gutteridge could easily apply in an SMSF context.

For SMSFs, if a related party ‘controls’ another entity and the SMSF invests in that entity, the investment by the SMSF may cause significant compliance issues (in-house assets) for the SMSF. Determining ‘control’ involves a detailed analysis of the structures, the people involved and their relationships, and the related party rules often connect people who are seemingly unrelated.

One of the tests for ‘control’ is to ask whether a person is accustomed, or might reasonably be expected, to act in accordance with the directions, instructions or wishes of another.

In Gutteridge, the sole director and shareholder of the trustee of the trust in question was Ms McKenzie. In the particular circumstances of this case, her father (Mr Gutteridge) was held to control the trust (‘from behind the scenes’) for the purposes of the small business CGT concessions, even though he was not a director or shareholder of the trustee or the appointor, and did not have a formal role in the management of the trust. In making this decision, the Tribunal took into account that Ms McKenzie routinely and consistently acted in accordance with her father’s wishes, he attended directors’ meetings, and external stakeholders were accustomed to dealing with Mr Gutteridge in relation to trust affairs.

The Tribunal confirmed the need to look at how the entity is actually managed, and considered the following factors may indicate a person is accustomed to acting in accordance with another’s wishes (‘control’):

  • the controller’s wishes or instructions are more than just a mere factor that is considered;
  • the controller has superior bargaining power; or
  • the controller in substance makes the decisions, even though they are not formally appointed as a trustee or director (the fact that Ms McKenzie was the sole director of the corporate trustee did not automatically mean that she controlled the trust).

The Tribunal also noted that it is not necessary for all decisions to be made by the controller, and it is enough if the controller is involved in some decisions, or one or more important decisions.

The case illustrates that ‘control’ is not a straight-forward issue, and goes beyond merely analysing formal directorships and shareholdings. To avoid possible non-compliance, SMSF trustees and their advisers should seek advice before establishing any new structures involving related parties, and review any existing structures where ‘control’ may be an issue.



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