On Wed 13.10.202], the ATO issued 3 Draft Determinations to assist mainly large businesses in applying the aggregation rules in Subdiv 328-C ITAA 1997 (meaning of small business entity). These rules form part of the aggregated turnover test, used to determine eligibility for a range of tax concessions.
Draft TD 2021/D2 – considers how the aggregation rules apply to partnerships, foreign hybrids and non-entity joint ventures. The ATO notes that these rules (and Subdiv 328-C more generally) apply to “entities”. Crucially, partnerships are treated as entities for Subdiv 328-C purposes, whereas non-entity joint ventures are not.
According to the ATO, the treatment of partnerships as entities means that an entity is capable of directly controlling a partnership based on the general direct control test or the specific partnership test (in s 328-125(2)). If an entity is directly controlled by (or controls) a partnership, that entity will also need to consider whether it is indirectly controlled by (or indirectly controls) any other entities that control (or are controlled by) the partnership, including the individual partners.
As foreign hybrids are partnerships for income tax purposes, both the general direct control test and the specific partnership test can apply. The ATO makes it clear that the voting control test (for companies) is not relevant.
As non-entity joint ventures are not entities for Subdiv 328-C purposes, the ATO view is that, in applying the aggregation rules, the relevant entities are each of the parties to the joint venture, in their separate capacities. Further, joint venturers will not be affiliates merely because of the nature of their business relationship.
Draft TD 2021/D3 – confirms that because corporate limited partnerships are treated as companies for income tax purposes, both the general direct control test and the voting control test are relevant.
Draft TD 2021/D4 – deals with the situation where a public entity is interposed in an ownership structure. The indirect control test (s 328-125(7)) does not apply if the interposed entity is one of the public entities listed in s 328-125(8). The ATO says that the mere presence of an interposed public entity will not result in the breakage of the control chain. The first entity may still control the third entity through direct control.
PROPOSED DATE OF EFFECT: retrospective.
COMMENTS on the Draft Determinations are due by 12 November 2021.
[Tax Month – October 2021 – Previous Tax Month; LTN 197, 13/10/21]