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PAYROLL TAX ACT 2007 - SECT 77
Indirect interest
77 Indirect interest
(1) An entity has an
"indirect interest" in a corporation if the corporation is linked to another
corporation (the
"directly controlled corporation" ) in which the entity has a direct interest.
(2) A corporation is linked to a directly controlled corporation if the
corporation is part of a chain of corporations- (a) that starts with the
directly controlled corporation, and
(b) in which a link in the chain is
formed if a corporation has a direct interest in the next corporation in the
chain.
(3) The following are examples of how subsections (1) and (2) work
(the examples are cumulative)- (a) corporation A (a
directly controlled corporation) has a direct interest in corporation B.
Corporations A and B form part of a chain of corporations, and corporation B
is linked to corporation A. Accordingly, an entity that has a direct interest
in corporation A also has an indirect interest in corporation B,
(b)
corporation B also has a direct interest in corporation C. In this case,
corporations A, B and C form part of a chain of corporations. Both
corporations B and C are linked to corporation A. The entity that has a direct
interest in corporation A has an indirect interest in both corporations B and
C,
(c) corporation B also has a direct interest in corporation D. There are
now 2 chains of corporations, one consisting of A, B and C, and one consisting
of A, B and D. Corporations B, C and D are all linked to corporation A and an
entity that has a direct interest in corporation A would have an
indirect interest in corporations B, C and D. An entity that has a direct
interest in corporation B would have an indirect interest in corporations C
and D. However, an entity that has a direct interest in corporation C only
would not have an indirect interest in corporation D, as corporation D is not
linked to corporation C.
(4) The value of the indirect interest of an entity
in a corporation (an
"indirectly controlled corporation" ) that is linked to a
directly controlled corporation is calculated by multiplying together the
following- (a) the value of the direct interest of the entity in the
directly controlled corporation,
(b) the value of each direct interest that
forms a link in the chain of corporations by which the
indirectly controlled corporation is linked to the
directly controlled corporation.
(5) The following are examples of how
subsection (4) works (the examples are cumulative)- (a) an entity has a direct
interest (with a value of 80%) in corporation A. Corporation A has a direct
interest (with a value of 70%) in corporation B. The value of the
indirect interest of the entity in corporation B is 80% × 70% (that is, 56%).
Accordingly, in this example the entity has a controlling interest (within the
meaning of section 73 (Groups arising from tracing of interests in
corporations)) in corporation B,
(b) corporation B also has a direct interest
(with a value of 40%) in corporation C. The value of the indirect interest of
the entity in corporation C is 80% × 70% × 40% (that is, 22.4%).
Accordingly, in this example the entity does not have a controlling interest
in corporation C.
(6) It is possible for an entity to have more than one
indirect interest in a corporation. This may occur if the corporation is
linked to more than one corporation in which the entity has a direct interest,
or if the corporation is linked to only one corporation in which the entity
has a direct interest but is linked through more than one chain of
corporations. In that case, the entity has an aggregate interest in the
corporation (see section 78 (Aggregation of interests)).
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