On Fri 11.6.2001, the ATO issued Draft TD 2021/D1, which is titled “Income tax: when working out your aggregated turnover, are the relevant annual turnovers of entities connected with you, or entities that are affiliates of yours, determined by reference to your income year?”. The Commissioner proposes to rule that turnover must be calculated for the same accounting period, as the primary taxpayer has adopted for its ‘income year’. It is far from clear that this is right, in my opinion, and you have until 9 July to make submissions about the appropriateness of the Commissioner’s proposed position.

See below for more detail.

[Tax Month – June 2021]



As the title indicates, it addresses the calculation of aggregated turnover for group entities under s 328-115 of ITAA 1997, which requires a taxpayer to calculate its annual turnover for the income year and the annual turnover for the income year of any entity connected with it (or of an affiliate) at any time during the income year.

The tax law allows taxpayers to apply for, and use, a ‘substituted accounting period’ (or SAP), so that the 2020-21 ‘income year’ will normally be the year ending 30 June 2021, but for another taxpayer, the 2020-21 ‘income year’ might be the year ending 31 December 2020. The point is, that the 2020-21 income year, will represent these two different accounting periods.

The alternatives are:

  1. Chose (for instance) the 2020-21 ‘income year’ for both taxpayers – even though they’ll be calculated for different accounting periods (which is more practical); or
  2. Chose the accounting period relevant to the primary entity, and make the other ‘connected’ and ‘affiliate’ entities calculate their turnover, for the same accounting period, as the primary entity, even though this will require calculating at least their ‘turnovers’ for part of two of their own accounting periods (which is less practical and more costly).

The Commissioner proposes to rule that taxpayers must adopt the less practical and more costly option (and this is primarily for ‘small business’ where cost and practicality would be, I would have thought, be quite important considerations). For the Commissioner to act this way, one would have thought that the statute must compel this, but the opposite is, in my opinion true. The relevant provisions is as follows. ‘Aggregated turnover’ is defined in section 328-115 of the 1997 Tax Act, as follows:

   (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).

Note: For small business CGT relief purposes, additional entities may be treated as being connected with you or your affiliate under sections 152-48 and 152-78.

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.

Section 328-115(2)(b)&(c) say the ‘income year’ of the ‘connected’ and ‘affiliate’ entities respectively. The ATO website is full of references to ‘early’ and ‘late’ balancers (of taxpayers with SAPs). This must be by reference to the normal ‘income year’. I would have thought that this fairly clearly refers to the accounting period, which those entities have adopted, for the same ‘income year’, applicable to the primary taxpayer.

However, the ATO says that the key period is ‘income year’ is that of the taxpayer, and that means the accounting period adopted for its ‘income year’.

With respect to the Commissioner, this not only seems the more impractical and costly option, but also is not supported by the language of the relevant law.

DATE OF EFFECT: the final Determination will apply both before and after its date of issue, but will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination.

COMMENTS are due by 9 July 2021.

[ATO website – TD 2021/D1; LTN 111, 11/6/21]


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