Edited version of private advice

Authorisation Number: 1051824628781

Date of advice: 08 April 2021

Ruling

Subject: Income tax - control - aggregated turnover

Question

Was the X Partnership connected with the taxpayer within the meaning of section 328-125 of the ITAA97 in the 2020 income year such that the whole of the ordinary income of X Partnership in that income year must be included in the taxpayer's aggregated turnover within the meaning of section 328-115 of the ITAA97 for the 20xx income year?

Answer

No - not for the whole year, but from xx xx 20xx.

This ruling applies for the following period

Year ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

1.    The taxpayer applied xx% of the license quota made available to it by X Partnership

2.    The share of the net proceeds of catch agreed between the taxpayer and the X Partnership varies between Fishing Seasons depending on seasonal conditions, with a Fishing Season running from xx xx to xx xx of the next year.

3.    The net proceeds of catch for the Fishing Seasons that cover the 20xx income year are as follows:

a.    for the Fishing Season that commenced on xx xx 20xx and ended on xx xx 20xx ("First Fishing Season") - the taxpayer as to xx% and the X Partnership as to xx%; and

b.    for the Fishing Season that commenced on xx xx 20xx and ended on xx xx 20xx ("Second Fishing Season") - the taxpayer as to xx% and the X Partnership as to xx%.

4.    The net income derived by the X Partnership in the 202xx income year in respect of the First Fishing Season is estimated as being $xx. Of this, the taxpayer had an entitlement to $xx.

5.    The X Partnership derived a net loss in the 20xx income year in respect of the Second Fishing Season in the order of $xx. The taxpayer's share of the net loss was in the order of $xx.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 328-115

Income Tax Assessment Act 1997 section 328-115(1)

Income Tax Assessment Act 1997 section 328-115(2)

Income Tax Assessment Act 1997 section 328-115(3)

Income Tax Assessment Act 1997 section 328-125(1)

Income Tax Assessment Act 1997 section 328-125(2)

Reasons for decision

Subsection 328-125(1) provides that an entity is connected with another entity if, either entity controls the other.

Subsection 328-125(2) provides

An entity (the first entity) controls another entity if the first entity, its affiliates, or the first entity together with its affiliates:

(a)  except if the other entity is a discretionary trust - own, or have the right to acquire the ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage ) that is at least 40% of:

(i)      any distribution of income by the other entity; or

(ii)     if the other entity is a partnership - the net income of the partnership; or

(iii)   any distribution of capital by the other entity or

(b)  if the other entity is a company - own, or have the right to acquire the ownership of, equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage ) that is at least 40% of the voting power in the company.

An entity controls a partnership where it has the right to receive a percentage that is at least 40% of the net income of the partnership. Regardless of whether the partnership is in a net income position, from xx xx 20xx, the taxpayer had the right to receive 40% of any net income, if net income were to arise. Therefore, from xx xx 20xx, the taxpayer controlled the X Partnership.

Subsection 328-115(1) states that an entity's aggregated turnover for an income year is the sum of the relevant annual turnovers.

The relevant annual turnovers as provided by section 328-115(2) are:

(a)  your annual turnover for the income year; and

(b)  the annual turnover for the income year of any 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 that is an affiliate of yours at any time during the income year. excluding any amounts covered by section 328-115(3).

Subsection 328-115(2) paragraph (b) includes in an entity's aggregated turnover the annual turnover for the income year of any entity that is connected to it at any time during the income year.

As the taxpayer is connected to the X Partnership from xx xx 20xx, its aggregated turnover will include the annual turnover of the X Partnership under subsection 328-115(2) paragraph (b), except where it is excluded by section 328-115.

Subsection 328-115(3) paragraph (c) excludes from an entity's annual turnover any amounts derived in the income year by a relevant entity while the relevant entity is not connected with the first entity.

As the taxpayer is connected to the X Partnership from xx xx 20xx, X Partnerships aggregated turnover from xx xx 20xx will be included the amounts derived in the 20xx income year by the taxpayer.

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