1 Aug

Who Am I Connected To Tax-Wise?

Posted at 15:43h

There are instances throughout tax law where you are required to know who the ‘entities connected with you’ are. This is used in determining if you are a Small Business Entity or what the value of your assets is if you wish to claim the Small Business CGT Concessions. It is also important in instances where you have sold an asset and claimed that it was used by an ‘entity connected with you’.

Sometimes, having an entity connected to you can be a good thing. If you were to sell a factory unit and a company connected with you ran a mechanics business out of that factory unit for example, this would allow you to claim the Small Business CGT Concessions on the sale of that factory unit.

Conversely, the value of the assets of a connected entity are added to yours when looking at certain asset tests. In that sense, you don’t want entities to be connected with you.

If you have a family trust and make a distribution to your adult daughter, you may have to add her assets to your asset pool for determining if you have access to tax concessions. Anyone that has received 40% of the income or capital of a trust in the previous four years is thus connected to that trust.
Two entities that are controlled by the same person or entity are also connected with each other so if you have two trusts that you control, those two trusts are also connected to each other as well as to you.

Interestingly, you and your spouse are not automatically connected to each other, nor would you normally be. If you control a company and your spouse controls their own separate company, then they will most likely not be connected to each other. Depending on the situation, this could be good or bad.

While this may sound complex, your connections are something that needs to be addressed on an ongoing basis. Using the example of the factory unit above, circumstances surrounding its disposal could change the connection. You may have kept the factory unit, but given the company to your son instead five years ago. This means that the company is no longer connected with you which could impact your access to certain tax concessions.

Keeping us apprised of your future plans for your assets and of changes that could impact your connections means that we can ensure that you do not inadvertently miss out on any of the tax concessions that may be available to you.

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