Grouping for aggregated turnover purposes

How grouping rules work to determine which tax offset you may be entitled to under the R&D tax incentive.

Last updated 13 May 2026

You use the following grouping rules to work out whether your entity is:

a research and development (R&D) entity that meets the aggregated turnover threshold to qualify for the refundable tax offset, as this is calculated on a 'group' basis
controlled by one or more exempt entities, again to see if it qualifies for the refundable tax offset.

Turnover threshold

The rate of tax offset and whether it is refundable depends primarily on an R&D entity's 'aggregated turnover'.

An R&D entity's aggregated turnover is the sum of the annual turnovers of the R&D entity and any entity with which it is either connected or affiliated, ignoring any dealings between those entities.

For more information about aggregate turnover, refer to section 328-120 of the ITAA 1997 and How to work out your aggregate turnover.

Connected entity

Your entity is connected with another entity if any of the following applies:

you control the other entity
the other entity controls you
you and the other entity are controlled by the same third entity.

Direct control

Broadly, your entity controls another entity if either of the following applies to your entity, its affiliates or both:

they own or have the right to acquire the ownership of interests in the other entity that carry between them the right to receive at least 40% of any distribution of
- income
- capital
- net income of the partnership if the other entity is a partnership
if the other entity is a company, they own or have the right to acquire the ownership of interests in the company with at least 40% of the voting power in the company.

We can decide that your entity does not control another entity, where your control percentage is at least 40%, but less than 50%. Refer to subsection 328-125(6) of the Income Tax Assessment Act 1997 (ITAA 1997).

Different rules apply for a discretionary trust.

For detailed information about the meaning of 'connected with' and 'control', refer to section 328-125 of the ITAA 1997.

Indirect control

If your entity directly controls a second entity, and the second entity controls (whether directly or indirectly) a third entity, then your entity is taken to control the third entity.

There are some exceptions to this rule – refer to subsection 328-125(8) of the ITAA 1997.

For more information about connected entities, refer to Entities connected with you and control relationships.

Affiliate

An individual or company is an affiliate of your entity if, in relation to the affairs of their business, they act, or could reasonably be expected to act, in either of the following ways:

in accordance with your entity's directions or wishes
in concert with your entity.

Two or more entities in partnership are not each other's affiliates just because one partner acts or could reasonably be expected to act in concert with the other in relation to the affairs of the partnership business.

For more information refer to Small business affiliates.

Example: aggregated turnover

Flowchart Matthew P/L Split two paths, one to 100% to King P/L to 40% to Bass P/L and second to 100% to Flinders P/L to 60% to Bass P/L.

To work out the aggregated turnover of each of the above entities, you would need to consider the following:

Matthew Pty Ltd
- directly controls (and is therefore connected with) Flinders Pty Ltd and King Pty Ltd
- indirectly controls (and is therefore connected with) Bass Pty Ltd, through a 60% share via Flinders Pty Ltd and a 40% share via King Pty Ltd.
Flinders Pty Ltd and King Pty Ltd
- are each 100% controlled by (and are therefore connected with) Matthew Pty Ltd
- are each controlled by the same entity (and are therefore connected with each other)
- each directly control (and are therefore connected with) Bass Pty Ltd.
Bass Pty Ltd
- is directly controlled by (and is therefore connected with) Flinders Pty Ltd (60% control) and King Pty Ltd (40% control)
- is indirectly controlled by (and is therefore connected with) Matthew Pty Ltd.

In summary, to work out the aggregated turnover of any of the 4 companies, the annual turnover of all 4 companies must be included in the calculation (excluding any dealings between them).

End of example

For more information about aggregate turnover connected with entities and affiliates refer to the following:

TD 2021/7 Income tax: aggregated turnover – calculating the annual turnover of a connected entity or affiliate with a different accounting period to you
TD 2023/5 Income tax: aggregated turnover and connected entities – Commissioner's discretion that an entity does not 'control' another entity
TD 2022/7 Income tax: aggregated turnover – application of the 'connected with' concept to partnerships, foreign hybrids and non-entity joint ventures
TD 2022/6 Income tax: aggregated turnover – application of the public entity exception to the indirect control test
TD 2022/5 Income tax: aggregated turnover – application of the 'connected with' concept to corporate limited partnerships
TD 2006/68 Income tax: capital gains: small business concessions: can trustees or members of a complying superannuation fund 'control' the superannuation fund in the way described in section 328-125 of the Income Tax Assessment Act 1997?

Exempt entity control

To work out whether one or more exempt entities control your R&D entity, you must apply the connected entity rules, but adopt 50% as the control percentage, instead of 40%.

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