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  • Definitions

    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.

    Aggregated turnover

    Aggregated turnover is the sum of the annual turnover for all of the following:

    • the R&D entity
    • any entity connected with the R&D entity (within the meaning of section 328-125 of the ITAA 1997)
    • any entity affiliated with the R&D entity (within the meaning of section 328-130 of the ITAA 1997).

    Certain turnover amounts from dealings between these entities are excluded.

    See also:

    Annual turnover

    An entity's annual turnover is the total ordinary income it derived in the income year in the ordinary course of carrying on its business activities. This amount does not include GST.

    If an entity is not carrying on a business at any time during the income year, its annual turnover is nil. If your entity carries on business for part of the income year, its annual turnover for that year must be worked out using a reasonable estimate of what its annual turnover would be if it carried on a business for the whole income year.

    See also:

    Associates

    In broad terms, associates are those entities that, by reason of family or business connections, might appropriately be regarded as being associates of a particular entity.

    Some examples of an associate of a company, other than a company in the capacity of trustee, include:

    • a partner of the company or a partnership in which the company is a partner
    • a trustee of a trust estate under which the company or associate benefits
    • another entity (including a natural person) that, acting alone or with another entity or entities, sufficiently influences the company
    • an entity (including a natural person) that, either alone or together with associates, holds a majority voting interest in the company
    • a second company that is sufficiently influenced by the company or the company's associate
    • a second company in which a majority voting interest is held by the company or the company's associate.

    For a more detailed definition, see section 318 of the ITAA 1936.

    Connected with an entity

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

    • either entity controls the other entity
    • both entities are controlled by the same third entity.

    For a detailed definition, see section 328-125 of the ITAA 1997

    Direct control

    For the purposes of working out aggregated turnover, 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.

    Different rules apply for a discretionary trust.

    If you are working out whether you have ownership by exempt entities, treat references to 40% above as references to 50%.

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

    For more information about the meaning of 'connected with' and 'control', see section 328-125 of the ITAA 1997.

    Exempt entity

    Exempt entity means an entity that is exempt from income tax under the ITAA 1997, ITAA 1936 or any other Commonwealth law, or an untaxable Commonwealth entity. For example, an entity that is exempt from income tax under section 50-1 of the ITAA 1997 is an exempt entity.

    Feedstock input expenditure

    Feedstock input expenditure refers to the expenditure incurred in one or more income years in acquiring or producing goods, or materials transformed or processed during R&D activities in producing one or more tangible products.

    Feedstock outputs

    Feedstock outputs refers to the tangible products produced as a result of the R&D activities (through the transformation or processing of feedstock inputs).

    Feedstock revenue

    When the feedstock output is immediately supplied or applied, the feedstock revenue will be its market value at that point.

    If further expenditures are incurred on the feedstock output between the R&D activity and the point of supply, then the feedstock revenue will be a proportion of the value of the marketable product that is supplied. In these circumstances the feedstock revenue is calculated as follows:

    Divide the cost of producing feedstock output by the cost of producing marketable product. Multiply the result by the market value of the marketable product.

    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, see subsection 328-125(8) of the ITAA 1997.

    Last modified: 28 May 2020QC 62349