Interpretation of Section 2A(1)(a): Associated persons for the the purposes of the Goods and Services Tax Act 1985

Summary

The High Court held that the "voting interests" test in s2A(1)(a)(i) refers to the legal ownership of shares and does not extend to the beneficial ownership of the shares.  Further, the Court held that "control by any other means" in s2A(1)(a)(iii) did not extend to the factual control argued by the Commissioner.

Case impact statement

This judgment is consistent with Concepts 124 Ltd v Commissioner of Inland Revenue, which established that the voting interests test in s 2A(1)(a)(i) related to legal ownership of the shares only and that the policy considerations underlying the continuity provisions do not apply where the voting interest provisions are used to determine control of the company. Accordingly, this judgment confirms that it is not necessary to look beyond the legal ownership of shares for the purposes of determining who holds the voting interests in a company.

This judgment also indicates that the distinction between legal and factual control does not determine whether an incidence of control is “control by any other means” for s 2A(1)(a)(iii). The Court concluded that it is reasonably arguable that “control” in (iii) refers to ownership interests in a company rather than other forms of control, such as that exercised by directors. Further, that the “means” by which that control is achieved arguably must relate or refer back to the ownership/voting interests in a company as the ultimate source of power, and therefore, control.

The Court held however that the powers in s 76 operate to void structures which appear to fall outside the associated persons definition when entered into between parties which are, in reality, between the same or associated persons.

The Commissioner regards this decision as suggesting that an incidence of factual control could constitute “control by any other means” in (iii), where it relates to the ownership/voting interests in a company. However, both this judgment and Concepts 124 Ltd indicate such a finding would be rare, particularly where s 76 of the GST Act was available.

The Commissioner’s Policy and Strategy unit is considering the impact of this decision on the issue of corporate trustees with multiple trusts.