Tracing of interests
An entity and a corporation form part of a group if the entity has a controlling interest in the corporation.
An entity has a controlling interest in a corporation if the corporation has share capital and:
the entity has a direct interest in the corporation and the value of that direct interest exceeds 50%, or
the entity has an indirect interest in the corporation and the value of that indirect interest exceeds 50%, or
the entity has an aggregate interest in the corporation and the value of that aggregate interest exceeds 50%.
Tracing provisions of interests in corporations
These provisions will group an entity, being a person or set of associated persons, with a corporation if the entity has a controlling interest in the corporation. A controlling interest exists if the entity has a direct interest, an indirect interest, or an aggregate interest in the corporation, and the value of that interest exceeds 50%.
A direct interest exists if the entity can directly or indirectly exercise the voting power attached to the voting shares in the corporation.
An indirect interest in a corporation (the 'indirectly controlled corporation') exists if the entity is linked to that corporation by a direct interest in another corporation which has a direct or indirect interest in the indirectly controlled corporation.
An aggregate interest exists if an entity has a direct and an indirect interest, or two or more indirect interests. The aggregate interest is the sum of the entity's direct and indirect interests in the corporation.
A set of associated persons may include direct family members and corporations in which that family has a majority shareholding .
Associated person has the same meaning, for the purposes of this Act, as associated persons in the Duties Act 1997.
Example
Lima Pty Ltd is the trustee of the Peter discretionary trust. Lima Pty Ltd holds 60% of the units in the Kilo Unit Trust. As all of the beneficiaries of the Peter discretionary trust have a controlling interest in the business of their trustee, they also have a controlling interest in the business of the unit trust.
Tracing of interests in corporations
Tracing of interests in corporations applies when a person or persons have voting shares in a corporation and the same person or persons, and the first corporation, both have voting shares in a second corporation.
Example
Mr Smith has a controlling interest in Able Pty Ltd of 80%
Mr Smith has an interest in Charlie Pty Ltd of 50%
Mr Smith has an indirect interest in Charlie Pty Ltd of 80%X40%X50% =16%.
Mr Smith has an aggregate interest in Charlie Pty Ltd of 50% +16% = 66%.
Mr Smith has a controlling interest in both Able Pty Ltd and Charlie Pty Ltd.
Able Pty Ltd and Charlie Pty Ltd are a group as Mr Smith has an interest of greater than 50% in both of them.
Bravo Pty Ltd is not part of the group as the level of interest is 50% or less.
Multiple shareholders
If 2 or more shareholders are involved they must be associated persons as defined in the Act in order to use tracing. If in the example above the shareholding was held by 2 brothers the grouping would be established. If the shareholding was held by 2 persons who are not associated, like a grandfather and granddaughter, tracing would not apply.
