Edited version of private advice

Authorisation Number: 1051836325979

Date of advice: 18 May 2021

Ruling

Subject: Aggregate turnover

Question 1

For the purposes of calculating the aggregated turnover of the AA tax consolidated group under section 328-115 of the Income Tax Assessment Act 1997 (ITAA 1997), does AA indirectly control BB Co under section 328-125 ITAA 1997?

Answer

Yes

Question 2

For the purposes of calculating the aggregated turnover of AA under section 328-115, is CC Co an affiliate of AA for the purposes of section 328-130 of the ITAA 1997?

Answer

No

Question 3

For the purposes of calculating the aggregated turnover of AA under section 328-115 of the ITAA 1997, will the Commissioner exercise the discretion in subsection 328-125(6) of the ITAA 1997 to determine, with effect from 1 July 2019, that AA does not control BB Co?

Answer

No

Question 4

With effect from 1 July 2019, will AA's aggregated turnover (as defined in section 328-115 of the ITAA 1997) include the annual turnover (as defined in section 328-120 of the ITAA 1997) of BB Co?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

AA is an Australian resident company for tax purposes.

AA is registered with the Australian Securities and Investments Commission as an unlisted public company.

AA is the head company of a tax consolidated group, which includes DD Pty.

For the year ended 30 June 20XX, AA has an aggregated turnover in excess of $XX million when including BB Co's annual turnover and excluding intragroup transactions.

No shareholder of AA, together, with their associates, holds more than 40% of the issued capital.

In 20XX BB Co was incorporated as a joint venture entity.

A Joint Venture Agreement (JVA) was executed between BB Co, DD Pty and CC Co.

The JVA governs how the equity owners, DD Pty and CC Co (Shareholders), will exercise their rights attached to their shareholding in BB Co.

The joint venture agreement

Under the JVA the following shares were to be issued:

•         DD Pty had 49% interest in BB Co; and

•         CC Co had a 51% interest in BB Co.

All shares are ordinary shares, thus each share has identical voting, dividend and capital rights.

The applicant provided the Joint Venture Agreement which sets out the Control of the BB Co Board (Board) and decision for making of BB Co and includes:

•         An option for CC Co to purchase DD Pty's share in BB Co at any time (after two years), at a price agreed by the parties at fair value. Therefore, the transfer between the two parties has to be at arms' length.

•         CC Co allowed to terminate the JVA after a stipulated number of years. Therefore, the JVA provides that CC Co controls the timing of the termination.

•         An option for DD Pty to sell its interest in BB Co if there is a change in control in CC Co. Therefore, an exit by DD Pty is contingent on an event affecting CC Co.

•         Neither DD Pty nor CC Co have a majority of directors in BB Co's board or in any board meeting. Accordingly, AA cannot control the board.

•         Although DD Pty provides day to day management, the board has responsibility for supervision of the management. All reserved matters require unanimous shareholder approval, other matters are subject to approval of a simple majority. Therefore, no strategic and operational decision making to operate BB Co's business is able to be undertaken without input from the CC Co directors. For example, all significant contracts and tenders must be approved by the board.

•         CC Co are required to provide the technology and provide technical support to BB Co. This is provided by granting BB Co a licence to the technology.

•         As CC Co can acquire 100% of the issued capital of BB Co at any time by exercise of a call option, this is a strong indicator that CC Co controls BB Co and that AA does not control BB Co.

•         Clause 19.1.3 provides CC Co is able to terminate the JVA at any time after the stipulated period. Again, this is a strong indicator that CC Co controls BB Co.

Relationship between DD Pty and CC Co:

Although the nature of the business carried on by DD Pty and CC Co are similar, the JVA is the only agreement which establishes a relationship between AA and CC Co.

CC Co plays no part in the management of DD Pty's or AA's business. Although they are common shareholders of BB Co, each entity performs their roles and responsibilities as separate entities as per the JVA.

All dealings between DD Pty and CC Co have been at arm's length and in respect to BB Co.

CC Co and AA do not share the same shareholders, nor are they financially dependent on one another.

AA does not have any direct interaction with CC Co or its Board apart from being common shareholders of BB Co.

All dealings between AA and CC Co are at arm's length and in respect to BB Co. No goods and/or services are provided between the two shareholders.

AA does not have any common resources or share facilities or services with CC Co.

CC Co plays no part in the management of DD Pty's or AA's business. Although they are common shareholders of BB Co, each entity performs their roles and responsibilities as separate entities per the JVA.

AA and CC Co are dependent on the dividends from BB Co, however, no funding is provided between the two shareholders.

CC Co and AA do not have joint bank accounts or same account signatories with the exception of those in the name of BB Co.

CC Co and AA do not share the same shareholders.

CC Co and AA do not seek to pursue marketing opportunities through each other, thus they do not share or obtain customers from one another.

Reasons for decision

These reasons for decision accompany the Notice of private ruling for AA.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

All references to legislation in this document are to the ITAA 1997 unless stated otherwise

Question 1

Summary

BB Co is 'connected with' AA and its turnover is taken into account for the purposes of calculating the aggregated turnover of AA as AA owns equity interests in BB Co that carry between them the right to exercise, or control the exercise of at least 40% (ie 49%) of the voting power in the company in accordance with paragraph 328-125(2)(b).

Detailed reasoning

The meaning of 'aggregate turnover' is defined in section 995-1 to have the meaning given by section 328-115. Relevantly, the meaning of 'aggregated turnover' consists of the sum of the relevant 'annual turnovers'.

The relevant annual turnovers are set out in subsection 328-115(2) and includes a taxpayer's own annual turnover and the annual turnovers of entities that are 'connected' with, or 'affiliates' of the taxpayer.

Meaning of connected with an entity

The term 'connected with' is defined under section 328-125 which states:

328-125(1) An entity is connected with another entity if:

(a) either entity controls the other entity in the way described in this section; or

(b) both entities are controlled in a way described in this section by the same third entity.

...

Direct control of a company

Subsection 328-125(2) sets out how an entity (other than a discretionary trust) directly controls another entity. Relevantly, paragraph 328-125(2)(a) provides that an entity controls another entity if the entity, its affiliates, or the entity together with its affiliates 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 that is at least 40% of:

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

(ii) any distribution of capital by the entity.

Further, paragraph 328-125(2)(b) provides that an entity controls a company if the entity, its affiliates, or the entity together with its affiliates 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 that is at least 40% of the voting power in the company.

In this case AA is the head company of a tax consolidated group which includes DD Pty as a member.

Upon choosing to form a tax consolidated group, the single entity rule (SER) in section 701-1 will apply. That section provides:

701-1 (1) If an entity is a *subsidiary member of a *consolidated group for any period, it and any other subsidiary member of the group are taken for the purposes covered by subsections (2) and (3) to be parts of the head company of the group, rather than separate entities, during that period.

The single entity rule treats members of a consolidated group as a single entity (being the head company) for income tax purposes.

The rule operates for the purposes set out in subsections 701-1(2) and (3) (the core purposes). These purposes are to work out the amount of the head company and subsidiary member's liability for income tax and the amount of a loss for a relevant period. They include all matters relevant and incidental to those calculations. Taxation Ruling TR 2004/11 at paragraph 8 provides that:

As a consequence, the SER has the effect that:

(a) the actions and transactions of a subsidiary member are treated as having been undertaken by the head company;

(b) the assets a subsidiary member of the group owns are taken to be owned by the head company (with the exception of intra-group assets) while the subsidiary remains a member of the consolidated group;

(c) assets where the rights and obligations are between members of a consolidated group (intra-group assets) are not recognised for income tax purposes during the period they are held within the group whether or not the asset, as a matter of law, was created before or during the period of consolidation (see also paragraph 11 and paragraphs 26-28); and

(d) dealings that are solely between members of the same consolidated group (intra-group dealings) will not result in ordinary or statutory income or a deduction to the group's head company.

Further, the taxation ruling at paragraph 35 provides:

In summary, the SER ensures that the income tax laws will apply to a consolidated group on the basis that the group is a single entity with all of the actions and transactions undertaken by the subsidiary members of the group being imputed to the head company...

Thus BB Co will be 'connected with' AA and its turnover is taken into account for the purposes of calculating the aggregated turnover of AA as AA owns an equity interest in BB Co that carries the right to exercise, or control the exercise of at least 40% (ie 49%) of the voting power in the company in accordance with paragraph 328-125(2)(b) of the ITAA 1997.

Question 2

Summary

The facts do not suggest that CC Co will act in accordance with AA's wishes or act in concert with each other. With the exception of the joint venture, the businesses of the entities are unrelated and operate independently of each other. The only relevant relationship the entities have is that both entities hold a substantial shareholding in the joint venture company BB Co. However, the joint venture is a business arrangement and the behaviours exhibited are not indicative of an entity being an affiliate. Thus, CC Co is not an affiliate of AA for the purposes of section 328-130.

Detailed reasoning

Section 328-130 provides the meaning of the term 'affiliate'. It provides:

328-130 (1) An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the business of the individual or company.

328-130 (2) However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share.

Meaning of 'could reasonably be expected'

The Full High Court, in FC of T v. Peabody (1994) 181 CLR 359; 94 ATC 4663; (1994) 28 ATR 344, held that the phrase 'might reasonably be expected' requires more than a possibility.

An entity, the first entity, 'could reasonably be expected' to act in accordance with another entity's, the second entity's, wishes where the second entity has a relationship of control or influence over the first entity. Such a relationship can be evidenced by the entities' behaviours and the presence of any influential relationships, such as:

(a) family or other close personal relationships;

(b) financial relationships and dependencies; and

(c) relationships created through links such as common directors, partners or shareholders.

Conversely, the entities' behaviours, obligations to each other and external parties, and their own interests may evidence the lack of such a relationship.

For a company, this relationship depends on whether the majority shareholders and/or directors of the company can reasonably be expected to act in accordance with another entity's directions.

Meaning of 'in concert'

'In concert' is not defined in the ITAA 1997, therefore it needs to be interpreted according to its ordinary meaning and in accordance with Subdivision 328-C.

The Macquarie Dictionary relevantly defines the phrase 'in concert' to mean:

'in a coordinated or organised way; together'.

This ordinary meaning suggests that the term 'in concert' is used in the affiliate definition to describe entities that cannot be seen as independent of each other because of the degree to which their business activities are combined or organised together.

The term 'in concert' was considered in Excellar Pty Ltd v FC of T [2015] AATA 282; (2015) ATC 10-391; (2015) 98 ATR 965, in relation to the meaning of 'small business CGT affiliate' in subsection 152-25. This provision has since been repealed; however the definition is broadly similar to section 328-130.

In this case, Senior Member Lazanas (at paragraph 75) agreed with earlier authorities that 'show that a person, A, will be acting in concert with another person, B, if A engages in conduct (act or omission) in consequence of an agreement or understanding between A and B and the conduct is in pursuance of an objective or purpose which is common to both.'

Senior Member Lazanas said (at paragraph 76) that:

The meaning of the phrase "to act in concert with" has been held (in non-tax contexts) to mean "at least an understanding between the parties as to their common purpose or object: Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Co Ltd (No 4) [1985] 1 Qd R 127.

Consistent with these views and the ordinary meaning of the phrase, an entity will be viewed as acting in concert with another entity where it and the other entity act together in pursuit of a common purpose or goal.

In the context of the definition of affiliate in section 328-130, that purpose or goal must be in relation to the affairs of the business of the individual or company.

In determining whether two entities are acting in concert for the purpose of the affiliate rules, paragraph 2.36 of the Explanatory Memorandum to the Tax Laws Amendment (Small Business) Bill 2007, which introduced the definition of 'affiliate', states:

2.36 The following factors may have a bearing on whether an individual or company is an affiliate of an entity to the extent that they show that two or more entities are acting in concert:

•         Family or close personal relationships;

•         financial relationships or dependencies;

•         relationships created through links such as common directors, partners, or shareholders;

•         the degree to which the entities consult with each other on business matters; or

•         whether one of the entities is under a formal or informal obligation to purchase goods or services or conduct aspects of their business with the other entity.

2.37 None of these factors are determinative in their own right.

Application to your circumstances

In this case:

•         AA does not have any direct interaction with CC Co or its Board apart from being common shareholders of BB Co.

•         All dealings between AA and CC Co have been at arm's length and in respect to BB Co. No goods and/or services are provided between the two shareholders of BB Co.

•         AA does not have any common resources or share facilities or services with CC Co.

•         CC Co plays no part in the management of DD Pty's or AA's business. Although they are common shareholders of BB Co, each entity performs their roles and responsibilities as separate entities per BB Co's JVA.

•         AA and CC Co are dependent on the dividends from BB Co, however, no funding is provided between the two shareholders. Further, CC Co and AA do not have joint bank accounts or same account signatories with the exception of those in the name of BB Co.

•         CC Co and AA do not share the same shareholders. CC Co and AA do not seek to purse marketing opportunities through each other, thus they do not share or obtain customers from one another.

These facts do not suggest that CC Co will act in accordance with AA's wishes or act in concert with each other in relation to the respective businesses. AA and the CC Co do not share employees, resources, facilities or services and have no financial interdependencies. With the exception of the joint venture, the businesses of the entities are unrelated and operate independently of each other. The only relevant relationship the entities have is that both entities hold a substantial shareholding in the joint venture company BB Co. However, the joint venture is a business arrangement and the behaviours exhibited are not indicative of an entity being an affiliate. Thus, CC Co is not an affiliate of AA for the purposes of section 328-130.

Question 3

Summary

For the purposes of calculating the aggregated turnover of AA under section 328-115, the Commissioner would not exercise the discretion under subsection 328-125(6) to determine, with effect from 1 July 2019, that AA does not control BB Co.

Detailed reasoning

Section 328-125(6) provides the Commissioner with a discretion to determine that an entity does not control another entity:

328-125(6) If the control percentage referred to in subsection (2) or (4) is at least 40%, but less than 50%, the Commissioner may determine that the first entity does not control the other entity if the Commissioner thinks that the other entity is controlled by an entity other than, or by entities that do not include, the first entity or any of its *affiliates.

The text of the statute shows that the meaning of control in subsection 328-125(6) departs from the general law meaning of controlling a company - being control of a majority of votes at a general meeting by a shareholder[1].

The Explanatory Memorandum to the Tax Laws Amendment (Small Business) Bill 2007 supports the above interpretation - that the relevant inquiry is actual control:

The Commissioner's discretion

2.59 Where an entity's interest in another entity is at least 40 per cent but less than 50 per cent the Commissioner may choose to ignore the interest of that entity in the other entity if the Commissioner determines that a third entity actually controls the other entity. [Schedule 1, item 1, subsection 328-125(6) of the ITAA 1997]

2.60 The Commissioner may think that another entity controls the entity either based on fact or on a reasonable assumption or inference. Whether or not the third entity has a 40 per cent interest may assist in determining whether the third entity controls the other entity, but it is not decisive.

Further, the text of the provision allows for less than majority control and for shared control between multiple entities. The text of the law includes the plural 'entities' (and that plural is not limited by an affiliation requirement). This allows for the possibility that there are two actual controllers. The effect of that is that there could be two entities with direct control and therefore two entities 'connected with' the third entity within the meaning of section 328-125.

In the Commissioner's view, the discretion in subsection 328-125(6) adopts the ordinary meaning of 'controlled', i.e. it is not equivalent to 'control' for the purpose of subsection 328-125(1) or 'controls' for the purpose of the statutory tests set out in subsections 328-125(2) and (4).

Ordinary meaning of 'Control'

"Control" is undefined and takes its ordinary meaning. The term 'control' is defined in the Macquarie Dictionary Online Edition to include:

(i) To exercise restraint or direction over, dominate; command.

(ii) To hold in check; curb.

Thus, it is considered that the Commissioner may, in determining whether a third entity (or entities) control the other entity for the purposes of subsection 328-125(6), consider the third entity's (or entities') ability to, for example, command the other entity to undertake/not undertake actions, and other relevant facts and evidence. This would include where the third entity (or entities) have less than a majority shareholding, or even no shareholding, in the other entity. The term 'controlled' is to take its ordinary meaning.

In determining the controlling entity/entities of BB Co, the Commissioner will give consideration to who is responsible for the strategic decision making on behalf of the company as well as the day-to-day management of the company.

Taxation Ruling TR 2018/5 Income tax: central management and control test of residency (TR 2018/5) provides some guidance on what to consider when determining control of an entity.

Paragraphs 11-12 state that:

The key element in the control and direction of a company's operations is the making of high level decisions that set the company's general policies, and determine the direction of its operations and the type of transactions it will enter.

The control and direction of a company is different from the day-to-day conduct and management of its activities and operations. The day-to-day conduct and management of a company's activities and operations is not ordinarily an act of central management and control. Nor is the management of day-to-day activities under the authority and supervision of higher-level managers or controllers.

Paragraph 14 of TR 2018/5 states:

Merely because a person is a majority shareholder, or has the power to appoint those who control and direct a company's operations does not, by itself, mean the person controls and directs a company's operations and activities.

Paragraph 15 of TR 2018/5 defines decision making as:

A person, or group of people, make a decision if they actively consider and decide to do, or not do something based on it being in the best interests of the company. It does not include the mere implementation, or rubberstamping, of decisions made by others (see paragraphs 26 to 29 of this Ruling).

Paragraph 16 of TR 2018/5 outlines acts that would indicate the exercise of central management and control of a company. These include setting investment and operational policy including deciding to buy and sell significant assets of the company, appointing company officers and agents (and revoking such appointments), overseeing and controlling those appointed and matters of finance including how profits are used and the declaration of dividends.

Paragraphs 20-23 outline what is the starting point in considering control. It states:

A starting point

20. Normally, where a company is run by its directors in accordance with its constitution and the company law rules applicable to that company, which give its directors the power to manage the company, the company's directors will control and direct its operations. It follows that ordinarily it is a company's directors who exercise its central management and control.

21. However, the actions of a company's directors, or others with the legal power and authority to control and manage the company, are not the end of the enquiry as to who exercises central management and control. There is no presumption that the directors of a company will always exercise its central management and control.

22. When determining who exercises a company's central management and control, all the relevant facts and circumstances must be considered. Facts and circumstances to be considered in determining who exercises a company's central management and control include the role of anyone who assumes the role of the directors' role in managing and controlling the company's affairs or has a role in the decision-making processes or governance of the company.

Mere legal power or authority to manage a company is not sufficient to establish exercise of central management and control

23. A person who has legal power or authority to control and direct a company, but does not use it, does not exercise central management and control. For example, in Bywater, the court disregarded the role of those directors who were formally appointed but did not play any real role in the affairs of the company.

Paragraph 24 of TR 2018/5 states:

24. A person may control and direct a company without actively intervening in the company's affairs on an ongoing basis provided they have appointed agents or managers whom they tacitly control to conduct the company's day-to-day business,• tacitly control and regularly exercise oversight of the affairs of the company, including monitoring the company's performance, and do not need to actively intervene because the company's affairs are running smoothly and in the manner they desire.

Application to your circumstances

Your Contentions

You believe for the following reasons that the discretion should be exercised for the following reasons:

•         Although not always decisive, CC Co has majority ownership on BB Co of 51% and, therefore, controls the shareholder votes.

•         In regard to the exit from BB Co, some of the key clauses in the JVA are:

-        An option for CC Co to purchase DD Pty's share in BB Co at any time (after two years), at a price agreed by the parties at fair value. Therefore, the transfer between the two parties has to be at arms' length.

-        CC Co allowed to terminate the JVA after a stipulated number of years. Therefore, the JVA provides that CC Co controls the timing of the termination.

-        An option for DD Pty to sell its interest in BB Co if there is a change in control in CC Co. Therefore, an exit by DD Pty is contingent on an event affecting CC Co.

-        Neither DD Pty nor CC Co have a majority of directors in BB Co's board or in any board meeting. Accordingly, AA cannot control the board.

-        Although DD Pty provides day to day management, the board has responsibility for supervision of the management. All reserved matters require unanimous shareholder approval, other matters are subject to approval of a simple majority. Therefore, no strategic and operational decision making to operate BB Co's business is able to be undertaken without input from the CC Co directors. For example, all significant contracts and tenders must be approved by the board.

-        CC Co are required to provide the technology and provide technical support to BB Co. This is provided by granting BB Co a licence to the technology.

-        As CC Co can acquire 100% of the issued capital of BB Co at any time by exercise of a call option, this is a strong indicator that CC Co controls BB Co and that AA does not control BB Co.

-        Clause 19.1.3 provides CC Co is able to terminate the JVA at any time after the stipulated period. Again, this is a strong indicator that CC Co controls BB Co.

You believe that in light of the above factors and balancing the factors that are indicative of control, it is submitted that CC Co controls BB Co and AA does not.

ATO position

While CC Co holds 51% of the shares in BB Co this does not necessarily mean that CC Co controls BB Co to the exclusion of any other entity as required by subsection 328-125(6) (discussed above). Merely because a person is a majority shareholder, or has the power to appoint those who control and direct a company's operations does not, by itself, mean the person controls and directs a company's operations and activities. Even if it were that the CC Co could use its 51% holding, that advantage in these circumstances does not mean CC Co controls BB Co and AA does not control BB Co. In this case the JVA governs the shareholders rights and obligation for this arrangement and there is no mechanism that allows CC Co to take advantage of its dominant shareholding.

Although the JVA may give CC Co the option to buy out the other shareholder this does not give CC Co control over the company in sense required until the option has been exercised.

Similarly, the option to terminate the JVA after the stipulated period.

In all these instances, until the termination of the JVA or the change in share ownership, the agreement is still in place and the activities of the company are conducted as per the agreement to which DD Pty was a party and there is no evidence to suggest that the agreement is not complied with.

While CC Co has its obligations under the JVA which requires CC Co to provide the technology and provide technical support to BB Co. This does not mean that it controls BB Co. The operations of the company are determined by the board of the company as set out in the JVA.

The other issues you raise are neutral to determining if the company was controlled by CC Co or another entity.

The Board has responsibility for supervision of the management of BB Co and certain matters require unanimous shareholder approval, other matters are subject to approval of a simple majority.

Subsection 328-125(6) requires that there must be evidence of actual control of the company. We consider that actual control requires the demonstration that another entity can approve a decision even in circumstances where agreement cannot be reached with other arm's length directors. The JVA does not entitle any director to have a casting vote in decision-making of the Board.

The actual control test in subsection 328-125(6) is a hypothetical test that requires the Commissioner in forming his view to have regard to the full range of possible facts and circumstances including the outcome that would arise where agreement cannot be reached between the directors. There has been insufficient evidence provided to indicate that CC Co or any other entity holds sufficient influence over the operational and strategic matters and that AA has no influence over the matters.

As set out at 'Question 1', pursuant to the statutory control test in subsection 328-125(2) the AA controls BB Co as it has ownership interests in BB Co that carry the right to exercise, or control the exercise of, a percentage (the control percentage) that was at least 40% of the voting power of BB Co during the relevant period. For the reasons set out above, the Commissioner would not be able to form the view that another entity controls BB Co and displace the statutory control test. On the facts, control rests with AA and CC Co jointly.

Question 4

Summary

The annual turnover of BB Co will be included in AA's aggregated turnover where the Commissioner does not exercise the discretion that AA does not control BB Co.

Detailed reasoning

The term 'aggregated turnover' for an income year is defined in subsection 328-115(1) as:

328-115(1) Your aggregate turnover for an income year is the sum of the relevant annual turnovers (see subsection (2) excluding any amounts covered by subsection (3).

...

Subsection 328-115(2) states:

328-115(2) The relevant annual turnovers are

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

(b) the annual turnover for the income year of any entity (a relevant 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 (a relevant entity) that is an *affiliate of yours at any time during the income year.

Subsection 328-115(3) states:

328-115(3) Your aggregated turnover for an income year does not include the following amounts:

(a) amounts *derived in the income year by you or a relevant entity from dealings between you and the relevant entity while the relevant entity is *connected with you or is your *affiliate;

(b) amounts derived in the income year by a relevant entity from dealings between the relevant entity and another relevant entity while each relevant entity is connected with you or is your affiliate;

(c) amounts derived in the income year by a relevant entity while the relevant entity is not connected with you and is not your affiliate.

As discussed at Question 1, BB Co is an entity that is connected with AA and as the Commissioner will not exercise the discretion as set out at 'Question 3', the aggregated turnover amount of AA includes the annual turnover of BB Co.

[1] Mendes v Commissioner of Probate Duties (1967) 122 CLR 152 at 170 per Windeyer J.

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