Instructions to help you complete the labels to provide information about the status of your company.
About the status of company
The information you include at item 3, along with certain income labels, will be used to identify entities for inclusion in the Report of entity tax information.
The status of a company is defined with reference to several sections of the income tax law. It is important that you correctly complete this item as the information is used for multiple purposes including assessment, verification activities and for the purposes of the annual corporate tax transparency report.
C – Residency – labels C1, C2 and C3
Print X in the box that shows the appropriate description.
Residency status is not required if you select labels D7 Corporate unit trust or D8 Public trading trust.
Complete label C3 if the company is a non-resident company carrying on a business in Australia through a permanent establishment (PE).
D – Entity type – labels D1 to D10
Print X in the box that shows the appropriate description. Complete only one of these. If more than one applies, select the one that appears first.
Marking the incorrect box may result in you not receiving a necessary service or material from us or could lead to incorrect targeting of audits.
A friendly society that carries on life insurance business must describe its status as label D10 Public; otherwise its status is labels D3 Non-profit. For more information on friendly societies that carry on life insurance business, see item 16. Life insurance companies and friendly societies only.
Label D4 Strata title body corporates are treated as public companies under the tax law and must lodge a company tax return for any year in which non-mutual income is earned. A strata title body corporate cannot use the strata title body corporate tax return but needs to complete a company tax return if it:
- has net capital gains
- has received franked dividends
- has losses brought forward from earlier income years claimed as a deduction
- has tax offset refunds
- has overseas transactions or interests
- needs to make an interposed entity election.
For more information, see Strata title body corporate tax return and instructions 2023.
Label D7 Corporate unit trust applies only to trusts that were a corporate unit trust within the meaning of former section 102J of the ITAA 1936. You can only select this status if the entity is the head company of a consolidated group because it has made a choice under Subdivision 713-C of the ITAA 1997.
For more information, see Unit trusts treated as corporate entities and Repeal of Division 6B.
Label D8 Public trading trust applies only to trusts that are public trading trusts as defined in section 102R of the ITAA 1936.
Legislative amendments in 2016 to modify Division 6C resulted in some trusts ceasing to be public trading trusts for income years starting on or after 1 July 2016. For more information, see Unit trusts treated as corporate entities and 20% tracing rule in Division 6C.
Corporate unit trusts and public trading trusts
Trusts that satisfy the conditions of section 102P (public trading trusts) of the ITAA 1936 in an income year:
- are subject to the company tax arrangements
- lodge company tax returns
- must apply for a company TFN.
The trust loss legislation in Schedule 2F to the ITAA 1936 applies to these trusts.
Consolidated or MEC groups
Subdivision 713-C of the ITAA 1997 enables a public trading trust to be the head company of the consolidated group, if certain conditions are met. A public trading trust which is a head company of a consolidated group will be treated as a company for all income tax purposes including the treatment of losses.
If the trust that satisfied former section 102J (corporate unit trust) of the ITAA 1936 is the head company of a consolidated group because it has made a choice under Subdivision 713-C of the ITAA 1997, the trust will continue to be treated as a company for income years commencing on or after 1 July 2016 despite the repeal of Division 6B of the ITAA 1936.
For more information, see Unit trusts treated as corporate entities.
Label D9 Private or D10 Public is a company's status for tax purposes, not for company law purposes. A company must determine its status (as a public or private company) for tax purposes each income year.
If you are a consolidated head company, you need to indicate if you are Label D9 Private or D10 Public. You also need to select Label Z1 Consolidated head company.
International taxation – treatment of certain foreign hybrid entities
Broadly, ‘foreign hybrid’ means entities such as:
- foreign hybrid limited partnerships, limited liability companies in the United States of America (US LLCs), and
- UK Limited Liability Partnerships (UK LLPs).
Australia treats such foreign hybrid entities as companies for tax purposes, but in their country of formation they are taxed on a partnership basis. That is, the overseas jurisdiction taxes the members on their share of the entity’s income and the entity itself is not taxed in that jurisdiction.
For Australian income tax purposes, if certain foreign hybrid entities (such as foreign hybrid limited partnerships, US LLCs and UK LLPs) meet the conditions specified under Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997) these foreign hybrid entities are treated as partnerships and not as companies.
Investors in these foreign hybrid entities are treated for Australian income tax purposes as having partnership interests. There are other special rules in addition to those normally applying to partnerships.
E – Activity indicator – labels E1 to E3
Print X in the box that shows the appropriate description. If more than one box applies, select the one that appears first. If none apply, leave the boxes blank.
F – Business indicator – labels F1 and F2
F1 Small business entity
Print X at label F1 if the company is a small business entity for 2022–23.
A small business entity is eligible for the small business entity concessions. If you are an eligible small business entity it is important to indicate it at this label as it is used to correctly assess pay as you go instalments.
Eligibility
The company will be a small business entity if it is carrying on a business and has an aggregated turnover of less than $10 million. This is known as the small business entity test.
Broadly, aggregated turnover is the company’s annual turnover plus the annual turnovers of any entities that are connected to or affiliated with it.
Companies that would be small business entities if the aggregated turnover threshold was $50 million are also eligible for immediate deduction for certain prepaid expenses and certain start-up expenses.
For information see:
- What it means for a company to be carrying on a business, see TR 2019/1 Income tax: when does a company carry on a business?
- How to determine a company's aggregated turnover, see Calculating turnover and Aggregation.
- LCR 2019/5 Base rate entities and base rate entity passive income.
Small business entity concessions
You must review your eligibility for the small business concessions each year.
Depending on its aggregated turnover for an income year, a small business entity may be eligible for the following concessions:
- Capital gains tax (CGT)
- 15-year asset exemption
- 50% active asset reduction
- retirement exemption
- rollover provisions, including the small business restructure rollover with effect from 1 July 2016
- simpler depreciation for small business
- deduction for professional expenses for start-ups
- deduction of certain prepaid business expenses immediately
- simplified trading stock rules
- accounting for GST on a cash basis
- annual apportionment of GST input tax credits
- payment of GST by quarterly instalments
- FBT car parking exemption
- FBT work-related devices exemption
- PAYG instalments based on GDP-adjusted notional tax.
Businesses that would be small business entities if the aggregated turnover threshold was $50 million may also be eligible for the following concessions
- deduction for professional expenses for start-ups
- deduction of certain prepaid business expenses immediately
Some of these concessions have specific eligibility conditions that must also be satisfied.
F2 Base rate entity
Print X at label F2 if the company is a base rate entity for 2022–23.
A company can be both a small business and a base rate entity.
For 2022–23, the lower company tax rate of 25% applies to a company that is a base rate entity. The company tax rate remains at 30% for all other companies that are not base rate entities. These changes do not apply to companies that are subject to a specific rate of tax, for example, companies in trustee capacity and certain life insurance, pooled development funds, non-profit companies and medium credit unions, see Base rate entity company tax rate.
Maximum franking credits
The maximum franking credit that can be allocated to a frankable distribution is based on a company's applicable corporate tax rate for imputation purposes.
For 2022–23, the company's corporate tax rate for imputation purposes may be either 25% or 30%, depending on the company's circumstances.
For more information, see Allocating franking credits.
Base rate entities
A company is a base rate entity for 2022–23 if:
- its aggregated turnover for 2022–23 is less than $50 million, and
- no more than 80% of its income is base rate entity passive income. This income includes
- dividends other than non-portfolio dividends
- franking credits on such dividends
- non-share dividends
- interest income (some exceptions apply)
- royalties and rent
- gains on qualifying securities
- net capital gains
- income from trusts or partnerships, to the extent it is referable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.
Broadly, aggregated turnover is the company’s annual turnover plus the annual turnovers of entities that are connected to or affiliated with it.
For information about:
- what it means for a company to be carrying on a business, see TR 2019/1 Income tax: when does a company carry on a business?
- how to determine a company's aggregated turnover, see Calculating turnover and Aggregation.
A company may be both a base rate entity for the lower company tax rate purposes and a small business entity for the purposes of the small business concessions.
Calculating turnover
Turnover includes all ordinary income that the company earned in the ordinary course of business for the income year. Some examples of amounts included and not included in ordinary income are in Table 1.
Include these amounts |
Do not include these amounts |
|---|---|
|
|
There are special rules for calculating the annual turnover if the company has retail fuel sales or business dealings with associates that are not at market value.
Aggregation rules
Special rules, called the aggregation rules, will determine who the company is connected to or affiliated with.
These rules prevent larger businesses from structuring or restructuring their affairs to take advantage of the small business entity concessions or the lower company tax rate.
An entity that is connected with the company or that is its affiliate is referred to as a relevant entity.
When calculating the company’s aggregated turnover, do not include:
- income from dealings between the company and a relevant entity
- income from dealings between any of the company’s relevant entities
- income from a relevant entity when it was not the company’s relevant entity.
If the company is not connected or affiliated with any other entities and its annual turnover for the relevant period is less than $10 million, then the company is a small business entity.
For more information see TD 2021/7 – Income tax: aggregated turnover – calculating the annual turnover of a connected entity or affiliate with a different accounting period to you
Business operated for only part of the year
If the company, or a relevant entity, carries on a business for only part of the income year, annual turnover must be worked out using a reasonable estimate of what the turnover would have been if the company, or relevant entity, had carried on a business for the whole of the income year.
Satisfying the aggregated turnover threshold
There are 3 ways to satisfy the $10 million aggregated turnover threshold or the $50 million aggregated turnover threshold. Most businesses will only need to consider the first method. These are:
Previous year turnover
If the company’s aggregated turnover for the previous income year was less than $10 million, it will be a small business entity for the current year. This is regardless of its estimated or actual aggregated turnover for the current year.
If the company's aggregated turnover for the previous income year was less than $50 million, it can access those small business entity concessions with an aggregated turnover threshold of less than $50 million.
Estimate of current year turnover
If the company’s estimated aggregated turnover for the current income year is less than $10 million, it will be a small business entity for the current year.
If the company's estimated aggregated turnover for the current income year is less than $50 million, it can access those small business entity concessions with an aggregated turnover threshold of less than $50 million.
If you are estimating the company’s turnover you need to:
- estimate the company’s turnover based on the conditions you are aware of at the relevant date
- assess whether the aggregated turnover is more likely than not to be less than $10 million or $50 million as at the relevant date.
- The relevant date is either:
- the first day of the income year
- the time the business started, if the company started a business part way through the year.
- Companies that began carrying on a business in the current year need to make a reasonable estimate of what their turnover would have been had the business been carried on for the entire year.
This method cannot be used if the company’s aggregated turnover in each of the previous 2 income years was equal to or more than the aggregated turnover threshold.
Actual current year turnover
If the company’s actual aggregated turnover is less than $10 million at the end of the income year, it will be a small business entity for that year.
If a company's actual aggregated turnover is less than $50 million at the end of the income year, it can access those small business entity concessions with an aggregated turnover threshold of less than $50 million.
This method is only needed if the first 2 tests cannot be met.
If the company is a small business entity by means of this third method only, it cannot use the GST and PAYG concessions for that income year because those particular concessions must have been chosen earlier in the income year.
G – Significant global entity – labels G1 and G2
G1– Significant global entity
Print X at label G1 if the entity was a significant global entity (SGE) for the income year.
An entity is an SGE if it is:
- a global parent entity with an annual global income of A$1 billion or more
- a member of a group of entities consolidated for accounting purposes, and one of the other group members is a global parent entity with an annual global income of A$1 billion or more
- a member of a notional listed company group, and one of the other group members is a global parent entity with an annual global income of A$1 billion or more.
A notional listed company group is a group of entities that would be required to be consolidated for accounting purposes as a single group, on the assumption that an entity of the group were a listed company. Disregard any exceptions in accounting principles that may permit an entity not to consolidate with other entities.
An entity is also an SGE if it is a global parent entity, or a member of an actual or notional accounting consolidated group which includes a global parent entity, and the global parent entity has been given a notice by the Commissioner determining that its annual global income would have been A$1 billion or more for the period had global financial statements been prepared.
G2 – Country by country reporting entity
Print X at label G2 if the entity was a country by country reporting entity (CBC reporting entity) for the income year.
An entity is a CBC reporting entity if it is:
- a country by country reporting parent, or
- a member of a country by country reporting group, and one of the other group members is a CBC reporting parent with an annual global income of A$1 billion or more.
A country by country reporting group may be a group that is consolidated for accounting purposes as a single group or a notional listed company group. A notional listed company group is a group of entities that would be required to be consolidated for accounting purposes as a single group, on the assumption that an entity of the group were a listed company. Unlike the SGE definition, the exception to consolidation in the accounting principles related to investment entities is not disregarded; that is, if applicable, when determining whether an entity is a CBC reporting entity, the investment entity exception in the accounting principles should be applied.
If an entity is a CBC reporting entity for an income year, it may have CBC reporting and General Purpose Financial Statement (GPFS) obligations:
- CBC reporting obligations depend on whether an entity was a CBC reporting entity for the whole or part of the preceding income year.
- GPFS obligations in part depend on whether you meet the definition of a CBC reporting entity for that income year.
If you are a CBC reporting entity, you must complete item 5 in the company tax return.
Z – Consolidated indicator – labels Z1 and Z2
Print X in the box that shows the appropriate description for the companies consolidation. Only complete one of these labels:
- Select Z1 Consolidated head company if the company was a head company of a consolidated or MEC group at any time during the income year. Consolidated head companies also need to indicate if they are label D9 Private or D10 Public.
- Select Z2 Consolidated subsidiary member if label Z1 does not apply and the company was a subsidiary member of a consolidated or MEC group that had a period when it was not a member of the group (non-membership period) during the income year. For more information, see Subsidiary member – non-membership period.
If neither label applies, leave the boxes blank.
Consolidation – taxing wholly owned groups as single entities
The taxation of consolidated groups and MEC groups, that is, the taxing of a group of wholly owned eligible companies, partnerships and trusts as if they are a single company, was introduced on 1 July 2002. Consolidation may be an option for your business if the business structure includes a company that wholly owns one or more entities.
For the Consolidation reference manual and other relevant publications, see Consolidation.
If you are lodging a company tax return as a head company for a consolidated or MEC group, print X in the box at Z1 Consolidated head company. Print X in all other boxes that apply in item 3 Status of the company.
Printing X at label Z1 in the return does not meet the requirement to notify the Commissioner that you have made a valid choice in writing to form a consolidated or MEC group.
Subsidiary member – non-membership period
If the company is a subsidiary member of a consolidated or MEC group and is lodging a tax return because it had a period during the income year when it was not a member of a consolidated group (a non-membership period), print X in the box at label Z2 Consolidated subsidiary member.
If a subsidiary member of a consolidated or MEC group must lodge a company tax return for any non-membership periods during the year of income, the company must complete all relevant schedules for the non-membership periods.
For information about reporting multiple non-membership periods during the income year, see the Consolidation reference manual, sheet C9-5-110.
If you completed label Z2, do not complete the part-year details at the top of page one of the tax return unless the company has an approved substituted accounting period. Even though the company will include only the income and deductions properly attributable to all of the periods of non-membership during the year, the tax return:
- is still regarded as being for the whole of the income year, that is, from 1 July to 30 June or equivalent substituted accounting period, and
- is lodged at the usual time.
Do not complete the Final tax return box on page 2 of the tax return if membership of the consolidated or MEC group is the only basis on which the company will not be required to lodge future tax returns.
Key elements of the consolidation regime
Choice to form a consolidated group or MEC group
To form a consolidated group, a group must consist of an Australian resident head company and at least one other Australian resident entity (a company, trust or partnership) wholly owned by the head company.
A consolidated group comes into existence when a head company of a consolidatable group makes a choice in writing that it is forming a consolidated group from a particular date.
To form a MEC group, there must be a potential MEC group consisting of 2 or more eligible tier-1 companies of a top company. A MEC group comes into existence when the relevant eligible tier-1 companies of a potential MEC group make a choice in writing that they are forming a MEC group from a particular date. The choice must also include the appointment of the provisional head company (PHC) of the group by the eligible tier-1 companies.
Certain corporate unit trusts and public trading trusts can be the head company of a consolidated group.
The choice to consolidate is optional, but once made is irrevocable.
If a head company of a consolidatable group chooses to consolidate on a specified date then, from that time, both the head company and all of its eligible wholly owned subsidiaries will be members of the consolidated group for income tax purposes. Similarly, where the eligible tier-1 companies of a potential MEC group choose to consolidate, all the eligible tier-1 companies and their eligible wholly owned subsidiaries will be members of the MEC group for income tax purposes.
The choice to consolidate must be made in writing no later than:
- the day on which the head company lodges its tax return for the income year in which the day specified in the choice occurs, or
- if a tax return is not required for that income year, the day it would otherwise have been due.
The period for making a choice in writing to consolidate cannot be changed. If the choice to consolidate is not made within the prescribed time, the group cannot be treated as consolidated for that income year.
- The Commissioner does not have the power to extend the time period for making the choice in writing.
- If more time is required to make a choice to consolidate, it is recommended that you ask for an extension of time to lodge the relevant tax return.
The choice, in writing to form a consolidated or MEC group is not required to be given to the Commissioner in the approved form to be effective, although notification of the choice (and relevant details in respect of it) must still be provided to the Commissioner in the approved form.
Notifying the Commissioner of your choice
The head company of a consolidated group or MEC group must notify the Commissioner, using the appropriate approved form, of its choice to consolidate.
You must lodge the appropriate notification within the same time period as applies to making a choice to consolidate.
For a consolidated group, the head company needs to complete and lodge a Notification of formation of an income tax consolidated group form.
For a MEC group, the head company needs to complete and lodge a Notification of formation of a multiple entry consolidated (MEC) group form.
If you cannot lodge your notification of formation within the required timeframe, contact us to discuss an extension of time to lodge your tax return.
Operating
On consolidation of the consolidated or MEC group:
- the subsidiary members cease to be recognised as separate entities (or taxpayers) for income tax purposes
- the head company is the only entity (or taxpayer) recognised for income tax purposes.
The assets of an entity that joins a consolidated or MEC group (other than eligible tier-1 companies) have a tax cost worked out in accordance with the tax cost setting rules. This tax cost is the cost base, value or amount required to be used by the head company when calculating the taxable income or tax loss of the consolidated or MEC group.
The consolidated or MEC group operates as a single entity for income tax purposes. The head company:
- lodges a single tax return, and
- pays a single set of PAYG instalments for the group.
The head company of a MEC group is the eligible tier-1 company that is the provisional head company (PHC) of the group at the end of the income year (or at the time the group ceases to exist). If the PHC becomes ineligible to be the PHC, a choice to appoint a new PHC must be made in writing by all of the remaining eligible tier-1 companies and notified to the Commissioner.
A consequence of choosing to consolidate is that transactions that occur solely between members of the consolidated or MEC group will be disregarded for income tax purposes.
If an entity joins (or leaves) a consolidated or MEC group part-way through the income year (meaning it has a period or periods when it was not a subsidiary member of a consolidated or MEC group, that is, non-membership periods) it will need to lodge a tax return for the income year but based only on amounts that are properly attributable to the non-membership periods.
The franking credits, pre-commencement excess foreign income tax, conduit foreign income and attribution account surpluses held by a joining entity at the time of joining a consolidated or MEC group can generally be transferred to, and used by, the head company of the group (for income tax purposes after the joining time). Special rules apply to determine whether the carried forward losses held by a joining entity at the joining time may be transferred to the head company and (to the extent transferred) modify the way in which the COT or SBT are applied to determine whether the head company may utilise them (to reduce taxable income) after the joining time.
Carry-forward losses, franking balances, pre-commencement excess foreign income tax and conduit foreign income transferred to the head company of the group remain with the head company when an entity leaves the group.
The consolidation regime does not affect a subsidiary member’s obligations for other taxes such as:
- goods and services tax (GST)
- fringe benefits tax (FBT)
- pay as you go (PAYG) withholding
- petroleum resource rent tax (PRRT).
Where a consolidated or MEC group includes one or more subsidiary members that are life insurance companies, special consolidation rules apply to take into account the particular taxation treatment of life insurance companies. For more information, see the Consolidation reference manual at C9-6.
The head company of a consolidated or MEC group (or PHC where relevant) must, among other things:
- pay the group’s PAYG instalments when it is issued with a consolidated instalment rate after the lodgment by the head company of its first group tax return
- determine, report and make any balancing adjustments to meet the group’s annual income tax liabilities
- manage any ongoing income tax liabilities and supply income tax information to us when required
- notify us of members that join or leave the group.
Consolidated and MEC groups – head company tax returns
The tax return disclosures are the head company’s principal means of communicating its consolidated group tax data to us. They are also used by the Commissioner to calculate the head company’s instalment rate. This data is useful in our role as administrator of Australia’s tax system as we and the government evaluate and monitor the tax system for the benefit of the community.
As a result, we expect that all disclosures in your tax return will reflect correct, or materially correct, consolidated amounts at each item. Such amounts do not take account of transactions that occur between members of the consolidated or MEC group and give effect to the single entity principle. Correct or materially correct consolidated amounts at each item will retain the structural integrity of the disclosures to enable consistent monitoring and analysis of taxpayer data.
In addition, the concept of materiality applies to the tax return items affected by consolidation. However, the amounts at item 7 – label T Taxable/ net income or loss and in the Calculation statement must be correct, not just materially correct.
In determining whether the consolidated amounts are materially correct, we are guided by the accounting standard on materiality: AASB 1031 Materiality.
We expect each completed consolidated tax return to be at least as relevant and as useful as other statutory financial reports.
Groups should have record-keeping, accounting and tax systems in place to ensure that materially correct consolidated data is available for your Company tax return 2023 and will have them for future tax returns.
Given that consolidation is about taxing wholly owned groups as single entities, a head company of a consolidated or MEC group must complete only one of each required schedule. Each required schedule will contain the information for the consolidated or MEC group.
Continue to: 4. Interposed entity election status