Related companies

Section 29 of the Land Tax Management Act 1956

Preamble

1. Liability for land tax is incurred if a person (which includes a company) owns land (other than exempt land), the total value of which equals or exceeds the taxable threshold. The threshold applying in any tax year is published on the OSR website.

2. The Land Tax Management Act 1956 (“the Act”) includes provisions specifying when companies are related to each other for the purpose of assessing land tax payable by such companies. Companies which are related to each other are members of a group for land tax purposes.

3. The related company provisions are contained in section 29 of the Act.  The purpose of these provisions is to prevent the practice of splitting land holdings among two or more commonly owned or controlled companies to obtain the benefit of the tax free threshold or the premium rate threshold more than once for the group.

4. The purpose of this ruling is to explain the application of the grouping provisions.

Ruling

Rules for determining whether companies are related

5. Subsection 29(1) of the Act defines the circumstances in which companies are related to each other. The essential requirement is that the companies must be either controlled or able to be controlled by the same person, or by the same people acting together.

6. The required relationship between companies to create a group may be established via the companies themselves or via a person or a group of persons acting together.  The different means by which companies can be grouped are discussed below at paragraphs 7 to 12.

Control exercised by a company over other companies

7. Section 29(1)(a) provides that two companies are related to each other if one company:

   • controls the composition of the board of directors of the other company; or

   • is able to cast, or control the casting of, more than 50% of the maximum number of votes at a general meeting of the other company; or

   • holds more than 50% of the issued share capital of the other company

Control exercised by the same person or persons over 2 or more companies

8. Section 29(1)(b) provides that companies are related if a person (including a company), or the same persons (including companies) acting together have a controlling interest in each company. Control of a company is deemed to exist if a person is, or persons acting together:

   • are able to control the composition of the boards of director of the company (the composition of a company’s board of directors is taken to be controlled by a person if that person can appoint or remove all or a majority of the directors); or

   • are in a position to cast or control the casting of more than 50% of the maximum number of votes that might be cast at a general meeting of the company; or

   • hold more than 50% of the company’s issued shares.

Control exercised jointly by a company together with its shareholders

9. Section 29(1)(c) provides that if two companies own less than 50% of each other's share capital, they are related to each other if both of the following tests are satisfied:

   • the second company and its shareholders together hold more than 50% of the share capital of the first company; and

   • the proportion of the share capital of the second company held by shareholders of the first company is more than the difference between 50% and the proportion of the share capital of the first company held by the second company

   Example

   Company A owns 10% of the share capital of Company B.

   Company B owns 40% of the share capital of Company A.

   Shareholders of Company B own 11% of the share capital of Company A.

   Shareholders of Company A own 11% of the share capital of Company B.

   Company B and its shareholders together own 51% of the share capital of Company A.

   The proportion of Company B’s share capital held by Company A’s shareholders (11%) is more than 10%, which is the difference between 50% and the proportion of Company A’s share capital held by Company B (ie 40%).

   Therefore Company A and Company B are related.

   

   Sections 29(1)(c)(i) and 29(1)(c)(ii) must both be met for companies A Pty Ltd and B Pty Ltd to be related.

   Section 29(1)(c)(i):

   More than 50% of the issued share capital of the first company must be held by the second company and shareholders of the second company.

   B Pty Ltd and it shareholders J Brown and J Red together hold 51% of the issued share capital of A Pty Ltd.

   s. 29(1)(c)(i) is met.

   Section 29(1)(c)(ii):

   The proportion of the issued share capital of B Pty Ltd (the second company) held by the shareholders of A Pty Ltd (the first company) is greater than the difference between 50% and the proportion of the issued share capital of A Pty Ltd (the first company) held by B Pty Ltd (the second company).

   s. 29(1)(c)(ii) is met.

   A Pty Ltd and B Pty Ltd are related companies.

10. The form of the controlling interest in each of the related companies does not have to be the same. For example, if a director of one company is able to cast more than 50% of the votes at a general meeting of the company, and that director also owns more than 50% of the issued capital of another company but does not control more than 50% of the voting rights, the two companies are still related because the same person (the director) has a controlling interest in both companies.

11. Section 29(1)(d) provides that two companies are related if they are both related to another company by any of the preceding provisions.

12. Under s 29(2)(a), companies may be related to each other even if one or more of those companies does not own land in New South Wales. Therefore, two companies that own land in NSW are grouped with each other if they are related to a third company that does not own land in NSW.

13. Under s 29(2)(c), shares held by any person or company as trustee for any other person or company are to be treated as if the other person or company as well as the trustee held the shares in their own right.

14. Under s 29(2)(e), where shares in a company are used as security for a loan from a person who conducts a money lending business, the grouping provisions do not apply unless the money lender who obtains the security interest in the shares is associated with that company eg as a director, secretary or related company if the money lender is a company.

Companies Controlled by the Same Trustee for Different Trusts

15. If a trustee holds controlling interests in two or more companies on behalf of different trusts, those companies are not related to each other only because of that control.

Separate and Joint Assessments

16. Under section 29(3) the Chief Commissioner, when assessing the tax payable by related companies of a group, is able:

    1. to assess all of the companies separately;

    2. to assess all of the companies jointly; or

    3. to assess any two or more of the companies jointly and the remainder separately.

Concessional and Non-concessional Companies

17. Section 29(3)(b) allows the Chief Commissioner to classify one company of a group as a concessional company. Alternatively, if none of the companies in the group owns land of sufficient taxable value to receive the full benefit of the land tax thresholds, 2 or more companies may be jointly assessed as a joint concessional company. The remaining companies (if any) are classified as non-concessional companies

Rights of Contribution or Indemnity

18. Where companies are related for the purpose of a land tax assessment, section 29(5) of the Land Tax Management Act 1956 and section 45(3) of the Taxation Administration Act provide that if any company has an unpaid tax debt, the Chief Commissioner may recover that debt from any or all of the related companies. The companies, whether assessed separately or jointly, have rights of contribution or indemnity between them as are just.

Company as a Trustee

19. Liability of a company in which land is vested as a trustee should be assessed under section 24 of the Land Tax Management Act 1956.