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The Commissioner has published a Decision Impact Statement in relation to the Federal Court decision in FCT v  Altnot Pty Ltd [2014] FCA 362; 2014 ATC 20-454.

The case concerned whether the AAT had erred in its construction of the former s 152-30(2) of ITAA 1997 regarding control of the taxpayer for the purposes of the connected entity test. The question was whether the sole director's wife was, in addition to her husband, a connected entity of the taxpayer for the purposes of the maximum net asset value test in s 152-15.

The Court held that the AAT misapplied the covering words in s 152-30(2) by only considering whether the director's wife owned shares in the taxpayer, and failed to consider the other two bases on which the wife might control the taxpayer, i.e., whether the wife's small business CGT affiliates (the director), or the wife together with the director, owned the required percentage of shares. The director was his wife's small business CGT affiliate because he was her spouse under the former s 152-25(1)(a).

In the Decision Impact Statement, the ATO notes that the decision of the Court is consistent with the Commissioner's submissions to the Court.

The ATO also notes that, while s 152-30 was repealed in 2007, the test for determining whether an entity is connected with a taxpayer is now to be found in s 328-125, when read with s 152-78. The ATO considers that the Court's construction of the covering words in the former s 152-30(2) is equally applicable to the covering words of s 328-125(2).

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