On Wed 13.10.2-21, the ATO issued TD 2021/7, which considers the operation of the aggregated turnover test in Subdiv 328-C ITAA 1997 (meaning of small business entity) where a connected entity or affiliate has a different accounting period to the taxpayer calculating its aggregated turnover.
The aggregated turnover test (s 328-115) is used to determine eligibility for a range of tax concessions. However, the applicable turnover threshold may be anywhere between $2m and $5bn. In particular, the temporary full expensing and corporate loss carry-back measures are available to entities with aggregated turnover of up to $5bn, hence the need for ATO guidance where subsidiaries have different accounting periods.
Section 328-115(2) requires a taxpayer to calculate both its annual turnover for the income year and the annual turnover “for the income year” of any entity that was an affiliate or connected entity at any time “during the income year”. The ATO confirms that the relevant income year for s 328-115 purposes is that of the taxpayer calculating the aggregated turnover. Accordingly, the taxpayer’s aggregated turnover is the sum of its annual turnover for the taxpayer’s income year and the annual turnover of entities that are connected with it (or are its affiliates) for the period matching the taxpayer’s income year. An example in TD 2021/7 shows that if the taxpayer has a June year end while a connected entity has a December year end, the connected entity’s annual turnover will have to be calculated as if it were a June balancer.
In a related TT article, I noted that this is expensive, as it will require the ‘connected entity’ to calculate turnover figures for two part years, instead of just the financial year or ‘substituted accounting period’ for the same (say) 2021/22 ‘income year’. I expressed the opinion that there was nothing in the relevant legislation compelling this more expensive and less practical option. Plainly he didn’t listen.
TD 2021/7 finalises Draft TD 2021/D1 and takes the same approach as the Draft.
DATE OF EFFECT: retrospective.
[Tax Month – October 2021 – Previous Tax Month; 17.10.21; LTN 197, 13/10/21]