Aggregation
Use the aggregation rules to work out whether you need to add any other business entities' annual turnover to your annual turnover to work out your aggregated turnover.
Annual turnover is all ordinary income you earned in the ordinary course of running a business for the income year.
Aggregated turnover is generally your annual turnover plus the annual turnover of any business:
- connected with you
- that is your affiliate.
If your business is a company, your aggregated turnover includes your annual turnover, plus the annual turnover of all the entities that are connected or affiliated with your company. These connected or affiliated entities may be based in Australia or overseas.
If you are aggregated with one or more other businesses, you do not need to use a particular concession just because some or all of those other businesses have chosen to use it.
Find out about:
See also:
- Definitions – the terms used to explain small business entity concessions
Work out your aggregated turnover
Follow these steps to calculate your aggregated turnover.
Step 1 – Work out your annual turnover (for the previous or current year)
Your annual turnover includes all ordinary income you earned in the ordinary course of business for the income year. Annual turnover means gross income, not net profit.
If you operate multiple business activities, either as a sole trader or within the same business structure, you must include the income from all your activities when working out your annual turnover.
For example, a sole trader operating a part-time consultancy and a retail shop would include the income from both business activities when working out annual turnover. Likewise, a company providing construction and project management services through separate arms of its business would need to include income from both activities when working out annual turnover.
Table 1: Amounts normally included and not included in ordinary income
Include these amounts
|
Do not include these amounts
|
- Trading stock sales
- Fees for services you provide
- Interest from business bank accounts
- Amounts you receive to replace something that would have had the character of business income
|
- GST you charge on a transaction
- Amounts you borrow for the business
- Proceeds from selling business capital assets
- Insurance proceeds for the loss or destruction of a business asset
- Amounts you receive from farm management deposit repayments
- JobKeeper payments (although they are ordinary income they are not earned in the ordinary course of business)
|
Note: Assessable income from an individual's personal income protection insurance policy as it is not 'from' a business activity
Special rules for calculating your annual turnover
Operating a business for part of the year
If you start or cease a business part way through an income year, you must make a reasonable estimate of what your annual turnover would have been if you had carried on the business for the entire income year. This rule applies for all three methods of working out whether you are a small business.
Retail fuel sales
Do not include retail fuel sales when working out your annual turnover. This is a special rule because sales of retail fuel are characteristically high in sales volume with low profit margins.
Non-arm's length business transactions
Include any income from transactions with an associate in your annual turnover.
If the dealing was not at arm's length (that is, the goods or services were sold at a discounted price because of their association with you) you must use the market value of the goods or services when working out your annual turnover.
However, you may take into account any discounts that you would have been offered had the dealing been at arm's length.
Example: Non-arm's length business transactions
Lana runs a printing business and Max runs a florist business. Lana and Max are married and are therefore each other's associate. Lana manufactures 200 gift cards for Max which he uses in his florist business. Lana only charges him the amount it costs her to manufacture the gift cards, with no profit margin.
This is a non-arm's length transaction between associates, so the amount that Lana must include in her annual turnover is the ordinary income she would have made from the sale of the gift cards if the transaction had been at arm's length. A useful guide for the amount she must use is the price she would charge any regular customer (taking into account bulk discounts that she would offer other customers).
End of exampleIf the aggregation rules do not apply to you, your aggregated turnover will be the same as your annual turnover. You do not need to read any further.
If you must consider the aggregation rules, or are not sure if they apply to you, read on.
Step 2 – Consider the aggregation rules
You must include the annual turnover of a relevant business with your annual turnover when working out your aggregated turnover.
A relevant business is a business that, at any time during the income year, is either:
- connected with you
- your affiliate.
Example: Aggregation rules
Using the previous example of Lana and Max, assume they each own 50% of the shares in a company called Lamax Pty Ltd. They do not have any involvement in each other's businesses. They are connected to Lamax Pty Ltd because they control the company. Lamax Pty Ltd is a relevant business of both Lana and Max.
Lana's aggregated turnover will be the annual turnover of her printing business plus the annual turnover of Lamax Pty Ltd.
Max's aggregated turnover will be the annual turnover of his florist business plus the annual turnover of Lamax Pty Ltd.
End of example
Example: Aggregation rules
BuildCo provides construction and project management services to its clients. It is a subsidiary of ParentCo, which is the parent company based in the USA. ParentCo is a relevant entity to BuildCo.
BuildCo's aggregated turnover will be its own annual turnover plus ParentCo's annual turnover.
End of exampleIf you have a relevant business, repeat Step 1 for each relevant business to work out their annual turnover. You must use the same method for working out your annual turnover and the annual turnovers of all your relevant businesses.
Step 3 – Work out your aggregated turnover
To work out your aggregated turnover, add the annual turnovers of relevant businesses to your annual turnover.
When working out your aggregated turnover, do not include any income:
- from dealings between you and a relevant business
- from dealings between any of your relevant businesses
- of a business when it was not your relevant business.
From 1 July 2016, a small business's aggregated turnover must be less than $10 million.
Example: Working out aggregated turnover for multiple entities
Claudia runs a clothing business and her brother Jonas runs a kitchen supplies store. Claudia and Jonas are associates, but they are not affiliates because they do not act in concert with one another or according to the directions or wishes of each other in regard to their respective businesses.
Claudia and Jonas each own 50% of the shares in a third business, CJ Retailers Pty Ltd. This means they are both connected with CJ Retailers Pty Ltd. Both Claudia and Jonas have separate dealings with CJ Retailers for their respective businesses.
Claudia must include CJ Retailers' annual turnover in her aggregated turnover because this business is connected with her. Claudia will not include any income from her transactions with CJ Retailers (to avoid double counting). Claudia will not include Jonas's turnover in her aggregated turnover because Jonas is not her affiliate.
Jonas must include CJ Retailers' annual turnover in his aggregated turnover because this business is connected with him. Jonas will not include any income from his transactions with CJ Retailers (to avoid double counting). Jonas will not include Claudia's annual turnover in his aggregated turnover, as Claudia is not his affiliate.
End of example
Example: Working out aggregated turnover for multiple entities
ElectricCo is an electrical contracting company that had an annual turnover of $7 million for the 2016–17 income year.
In 2015, ElectricCo expanded its business services and purchased another company called HiVoltCo to undertake high voltage installations.
HiVoltCo had an annual turnover of $2 million for the 2016–17 income year. As HiVoltCo is connected with ElectricCo, its annual turnover will be included when calculating ElectricCo's aggregated turnover.
ElectricCo's aggregated turnover is $9 million for the 2016–17 income year, as it is only connected with HiVoltCo. HiVoltCo's aggregated turnover is also $9m.
As the aggregated turnover of both ElectricCo and HiVoltCo is under the $10 million threshold, ElectricCo has access to small business concessions and the lower company tax rate will apply.
End of exampleSee also:
- Subdivision 328-C of the Income Tax Assessment Act 1997 – What is a small business entity?
- Are you in business? – determine the differences between a hobby and a business for tax purposes
Information about the aggregation rules and how they apply to the small business entity concessions.