Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) For the purposes of subsection 842 - 230(2), apply the rules in this section in determining an entity's * total participation interest in another entity (the test entity ).
(2) If an entity has, through one or more interposed entities, an * indirect participation interest in the test entity, treat each of those interposed entities as having a * total participation interest in the test entity of nil.
(3) If the test entity is a trust, do not treat an object of the trust as having a * direct participation interest or * indirect participation interest in the test entity.
(4) Treat the following (the affiliated entities ):
(a) an entity;
(b) each of the entity's * affiliates;
as together being one entity, that has all of the interests and rights of the affiliated entities.
Note: Such interests and rights may give rise to a participation interest in the test entity.
(5) If an entity (the nominee ) has interests and rights in the capacity of nominee of another entity:
(a) treat the nominee as not having those interests and rights; and
(b) instead, treat the other entity as having those interests and rights (in addition to the other entity's interests and rights apart from this subsection).
(6) If an entity that has a * direct participation interest or * indirect participation interest in the test entity is an entity covered by:
(a) paragraph 842 - 230(1)(a), (b) or (c); or
(b) paragraph 275 - 20(4)(f) (foreign collective investment vehicles with a wide membership);
treat the entity's * total participation interest in the test entity as nil.
(7) The application of subsection (6) to an entity that has a * direct participation interest or * indirect participation interest in the test entity does not affect the * total participation interest in the test entity of any other entity that has a direct participation interest or indirect participation interest in the test entity.
(8) In determining a * direct participation interest of one entity in another entity, disregard paragraph 350(1)(b) of the Income Tax Assessment Act 1936 (rights of shareholders to vote or participate in certain decision - making).
(9) If the test entity is an * IMR entity and another entity is an independent fund manager for the test entity, in determining the * total participation interest of the other entity, or any entity * connected with the other entity, in the test entity, disregard any direct or indirect entitlements (including contingent entitlements) of the other entity, or connected entity, to remuneration from the test entity:
(a) to the extent that the remuneration is subject to income tax in relation to the income year for which the consequences (if any) under subsection 842 - 215(1) or (2) are being determined in relation to the test entity; and
(b) to the extent that the remuneration is subject to taxation in relation to that income year under a * foreign law.
Example: Assume that 4 entities have interests in an IMR entity, as follows:
(a) a life insurance company has a 55% interest;
(b) an endowment fund has a 5% interest;
(c) company A has a 25% interest. It has 2 shareholders (who are not affiliated): shareholder Y holds 60% of the shares and shareholder Z holds 40%;
(d) company B has a 15% interest. It has several shareholders.
The IMR entity is an IMR widely held entity because:
(e) under subsection 842 - 235(6), the life insurance company has a total participation interest of nil, as it is covered by paragraph 275 - 20(4)(a); and
(f) the endowment fund has a total participation interest below the 20% threshold in subparagraph 842 - 230(2)(a)(i); and
(g) under subsection 842 - 235(2), company A' s 25% interest is divided between shareholder Y (15%) and shareholder Z (10%), and company A is treated as having a total participation interest in the IMR entity of nil; and
(h) company B's 15% interest is below the 20% threshold, so none of its shareholders can have a total participation interest above that threshold. (In these circumstances, it is not necessary to determine the total participation interests for each of those shareholders.)
(Treating the life insurance company' s 55% interest as a total participation interest of nil ensures that no summing of the other total participation interest can exceed the 50% threshold in subparagraph 842 - 230(2)(a)(ii).)