Associated Person Concept

The concept of associated person applies in a many different contexts. This concept is used as an anti-avoidance tool which is there to prevent related parties setting up arrangement to avoid paying tax. This concept makes sure that transactions between related parties are afforded the same treatment as if the transaction was conducted between arm’s length parties. In practice, it means that transactions between related parties must be recorded at market price. The most important use of associated person concept is in land transactions and private transactions.

Subpart YB of the ITA 07 is about associated person concepts and rules. 

The general tests of association are set out in s YB 1 and are as follows:

• two companies, see section YB 2:
• a company and a person other than a company, see section YB 3:
• two relatives, see section YB 4:
• a person and a trustee for a relative, see section YB 5:
• a trustee and a beneficiary, see section YB 6:
• trustees with a common settlor, see section YB 7:
• a trustee and a settlor, see section YB 8:
• a settlor and a beneficiary, see section YB 9:
• a trustee and a person with a power of appointment or removal, see section YB 11:
• a partnership and a partner, see section YB 12:
• two persons who are each associated with the same third person, see section YB 14.

Disclaimer: The following answer necessarily sets out general principles only. The facts of particular cases always need to be considered carefully, and it may be necessary to obtain advice from a tax expert.

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