Tax Laws Amendment (Small Business) Act 2007 (80 of 2007)
Schedule 1 Small business entities
Income Tax Assessment Act 1997
1 After Subdivision 328-B
Insert:
Subdivision 328-C - What is a small business entity
Guide to Subdivision 328-C
328-105 What this Subdivision is about
This Subdivision explains the meaning of the terms small business entity , annual turnover , aggregated turnover and related concepts.
Table of sections
Operative provisions
328-110 Meaning of small business entity
328-115 Meaning of aggregated turnover
328-120 Meaning of annual turnover
328-125 Meaning of connected with an entity
328-130 Meaning of affiliate
Operative provisions
328-110 Meaning of small business entity
General rule: based on aggregated turnover worked out as at the beginning of the current income year
(1) You are a small business entity for an income year (the current year ) if:
(a) you carry on a *business in the current year; and
(b) one or both of the following applies:
(i) you carried on a business in the income year (the previous year ) before the current year and your *aggregated turnover for the previous year was less than $2 million;
(ii) your aggregated turnover for the current year is likely to be less than $2 million.
Note: Section 328-110 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007-08 and 2008-09 income years.
(2) You work out your *aggregated turnover for the current year for the purposes of subparagraph (1)(b)(ii):
(a) as at the first day of the current year; or
(b) if you start to carry on a *business during the current year - as at the day you start to carry on the business.
Note: Subsection 328-120(5) provides for how to work out your annual turnover (which is relevant to working out your aggregated turnover) if you do not carry on a business for the whole of an income year.
Exception: aggregated turnover for 2 previous income years was $2 million or more
(3) However, you are not a small business entity for an income year (the current year ) because of subparagraph (1)(b)(ii) if:
(a) you carried on a *business in each of the 2 income years before the current year; and
(b) your *aggregated turnover for each of those income years was $2 million or more.
Note: Section 328-110 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007-08 and 2008-09 income years.
Additional rule: based on aggregated turnover worked out as at the end of the current income year
(4) You are also a small business entity for an income year (the current year ) if:
(a) you carry on a *business in the current year; and
(b) your *aggregated turnover for the current year, worked out as at the end of that year, is less than $2 million.
Note: If you are a small business entity only because of subsection (4), you cannot choose any of the following concessions:
(a) paying PAYG instalments based on GDP-adjusted notional tax: see section 45-130 of Schedule 1 to the Taxation Administration Act 1953;
(b) accounting for GST on a cash basis: see section 29-40 of the GST Act;
(c) making an annual apportionment of input tax credits for acquisitions and importations that are partly creditable: see section 131-5 of the GST Act;
(d) paying GST by quarterly instalments: see section 162-5 of the GST Act.
Winding up a business previously carried on
(5) This Subdivision applies to you as if you carried on a *business in an income year if:
(a) in that year you were winding up a business you previously carried on; and
(b) you were a *small business entity for the income year in which you stopped carrying on that business.
Note 1: Subsection 328-120(5) provides for how to work out your annual turnover (which is relevant to working out your aggregated turnover) if you do not carry on a business for the whole of an income year.
Note 2: A special rule applies if you were an STS taxpayer under this Division (as in force immediately before the commencement of this section) in the income year in which you stopped carrying on the business: see section 328-111 of the Income Tax (Transitional Provisions) Act 1997.
328-115 Meaning of aggregated turnover
(1) Your aggregated turnover for an income year is the sum of the relevant annual turnovers (see subsection (2)) excluding any amounts covered by subsection (3).
(2) The relevant annual turnovers are:
(a) your *annual turnover for the income year; and
(b) the annual turnover for the income year of any entity (a relevant entity ) that is *connected with you at any time during the income year; and
(c) the annual turnover for the income year of any entity (a relevant entity ) that is an *affiliate of yours at any time during the income year.
(3) Your aggregated turnover for an income year does not include the following amounts:
(a) amounts *derived in the income year by you or a relevant entity from dealings between you and the relevant entity while the relevant entity is *connected with you or is your *affiliate;
(b) amounts derived in the income year by a relevant entity from dealings between the relevant entity and another relevant entity while each relevant entity is connected with you or is your affiliate;
(c) amounts derived in the income year by a relevant entity while the relevant entity is not connected with you and is not your affiliate.
328-120 Meaning of annual turnover
General rule
(1) An entity’s annual turnover for an income year is the total *ordinary income that the entity *derives in the income year in the ordinary course of carrying on a *business.
Exclusion of amounts relating to GST
(2) In working out an entity’s *annual turnover for an income year, do not include any amount that is *non-assessable non-exempt income under section 17-5 (which is about GST).
Exclusion of amounts derived from sales of retail fuel
(3) In working out an entity’s *annual turnover for an income year, do not include any amounts of *ordinary income the entity *derives from sales of *retail fuel.
Amounts derived from dealings with associates
(4) In working out an entity’s *annual turnover for an income year, the amount of *ordinary income the entity *derives from any dealing with an *associate of the entity is the amount of ordinary income the entity would derive from the dealing if it were at *arm’s length.
Note: Amounts derived in an income year from any dealings between an entity and an associate that is a relevant entity within the meaning of section 328-115 are not included in the entity’s aggregated turnover for that year: see subsection 328-115(3).
Business carried on for part of income year only
(5) If an entity does not carry on a *business for the whole of an income year, the entity’s *annual turnover for the income year must be worked out using a reasonable estimate of what the entity’s annual turnover for the income year would be if the entity carried on a business for the whole of the income year.
Regulations may provide for different calculation of annual turnover
(6) The regulations may provide that an entity’s *annual turnover for an income year is to be calculated in a different way, but only so that it would be less than the amount worked out under this section.
328-125 Meaning of connected with an entity
(1) An entity is connected with another entity if:
(a) either entity controls the other entity in a way described in this section; or
(b) both entities are controlled in a way described in this section by the same third entity.
Direct control of an entity other than a discretionary trust
(2) An entity (the first entity ) controls another entity if the first entity, its *affiliates, or the first entity together with its affiliates:
(a) except if the other entity is a discretionary trust - beneficially own, or have the right to acquire the beneficial ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage ) that is at least 40% of:
(i) any distribution of income by the other entity; or
(ii) if the other entity is a partnership - the net income of the partnership; or
(iii) any distribution of capital by the other entity; or
(b) if the other entity is a company - beneficially own, or have the right to acquire the beneficial ownership of, *equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage ) that is at least 40% of the voting power in the company.
Direct control of a discretionary trust
(3) An entity (the first entity ) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity, its *affiliates, or the first entity together with its affiliates.
(4) An entity (the first entity ) controls a discretionary trust for an income year if, for any of the 4 income years before that year:
(a) the trustee of the trust paid to, or applied for the benefit of:
(i) the first entity; or
(ii) any of the first entity’s *affiliates; or
(iii) the first entity and any of its affiliates;
any of the income or capital of the trust; and
(b) the percentage (the control percentage ) of the income or capital paid or applied is at least 40% of the total amount of income or capital paid or applied by the trustee for that year.
Note: Section 328-112 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007-08, 2008-09, 2009-10 and 2010-11 income years.
(5) An entity does not control a discretionary trust because of subsection (4) if the entity is:
(a) an *exempt entity; or
(b) a *deductible gift recipient.
Commissioner may determine that an entity does not control another entity
(6) If the control percentage referred to in subsection (2) or (4) is at least 40%, but less than 50%, the Commissioner may determine that the first entity does not control the other entity if the Commissioner thinks that the other entity is controlled by an entity other than, or by entities that do not include, the first entity or any of its *affiliates.
Indirect control of an entity
(7) This section applies to an entity (the first entity ) that directly controls another entity (the second entity ) as if the first entity also controlled any other entity that is directly, or indirectly by any other application or applications of this section, controlled by the second entity.
(8) However, subsection (7) does not apply if the second entity is an entity of any of the following kinds:
(a) a company *shares in which (except shares that carry the right to a fixed rate of *dividend) are listed for quotation in the official list of an *approved stock exchange;
(b) a *publicly traded unit trust;
(c) a *mutual insurance company;
(d) a *mutual affiliate company;
(e) a company (other than one covered by paragraph (a)) all the shares in which are beneficially owned by one or more of the following:
(i) a company covered by paragraph (a);
(ii) a publicly traded unit trust;
(iii) a mutual insurance company;
(iv) a mutual affiliate company.
328-130 Meaning of affiliate
(1) An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the *business of the individual or company.
(2) However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share.
Example: A partner in a partnership would not be an affiliate of another partner merely because the first partner acts, or could reasonably be expected to act, in accordance with the directions or wishes of the second partner, or in concert with the second partner, in relation to the affairs of the partnership.
Directors of the same company and trustees of the same trust, or the company and a director of that company, would be in a similar position.