The term 'connected persons' explained
The Practical Vat Loose Leaf Service explains that the term 'connected persons' includes:
#1: A person in relation to a company where that person (including his spouse, minor child or any trust in respect of which that person, his spouse or minor child is a beneficiary) is separately or jointly interested in 10% or more of the company's paid-up capital or equity share capital or voting rights of the shareholders;
For example, Sue Shareholder acquires 49% of the shares inShareCo Pty Ltd. Sue Shareholder and ShareCoPty Ltd are connected persons for Vat purposes.
#2: A company in relation to any other company where those companies have substantially the same shareholders, or are controlled by substantially the same persons;
For example, HoldCo Limited owns 100% of the shares in SubCo Pty Ltd and MyCo Pty Ltd. SubCo Pty Ltd and MyCo Pty Ltd are connected persons for Vat purposes.
#3: A Trust fund in relation to the beneficiaries of that fund;
#4: A member or partner in relation to a close corporation or partnership;
#5: Any natural person in relation to his relatives (including the estate of any such relative) or in relation to a Trust fund of which his relatives are beneficiaries; or
#6: Any person and any superannuation scheme, the members of which are mainly the employees or office holders or former employees or office holders of that person.
For example, John Doe is employed by ABC Bank as Chief Financial Officer and is a member of ABC Pension Fund, a superannuation scheme. All employees of ABC Bank are members of the ABC Pension Fund.
ABC Bank and the ABC Pension Fund are connected persons for Vat purposes.
Here's why it's important to know the meaning of the term 'connected persons'
Any person who is liable to register for Vat but fails to do so is guilty of an offence and may be liable to a fine or two years imprisonment.
Don't get caught out!
Warning: There are Vat implications when transacting with a connected person
The Loose Leaf Service says if you transact with a connected person, Vat law says you may charge them less. While this is the case, you still have a full Vat liability and you must calculate the Vat correctly if you want to avoid penalties.
Knowing what the term 'connected person' means will bring you a step closer to complying with Vat law.