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Edited version of your written advice
Authorisation Number: 1012922234173
Date of advice: 10 December 2015
Ruling
Subject: Annual Turnover
Question 1
Should you include "Company X Billed Customers" sales in your annual turnover calculation for the purposes of the Small Business Entity Concessions as per section 328-110 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
This ruling applies for the following periods:
1 July 20YY -30 June 20ZZ
The scheme commences on:
1 July 20YY
Relevant facts and circumstances
You run a delivery and distribution business.
You have a distribution agreement with Company X.
You distribute to Company X Billed Customers and have direct customers.
Company X Billed Customers are defined in the distribution agreement as any customer that receives products where Company X provides the billing and trade credit to that customer.
You only receive the commission/delivery fees into your trading bank account for Company X Billed Customers.
You are not entitled to receive the sales income from Company X Billed Customers into your trading bank account.
You have changed your accounting system from 1 July 20YY.
From 1 July 20YY you will only report and record the commission/delivery fee of Company X Billed Customer sales as income.
From 1 July 20YY you will not record the sales for products to Company X Billed Customers as income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 328-110
Income Tax Assessment Act 1997 Section 328-115
Income Tax Assessment Act 1997 Subsection 328-120(1)
Income Tax Assessment Act 1997 Section 328-125
Income Tax Assessment Act 1997 Section 328-130
Reasons for decision
Under subsection 328-120(1) of the ITAA 1997 the annual turnover of an entity for an income year is the total ordinary income derived in the income year in the ordinary course of carrying on a business.
Ordinary income has its meaning given by section 6-5 of the ITAA 1997, which states that your assessable income includes income according to ordinary concepts, which is called ordinary income.
Subsection 6-5(1) of the ITAA 1997 states your assessable income includes income according to ordinary concepts, which is called ordinary income.
Subsection 6-5(2) states if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Subsection 6-5(4) states in working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.
You operate a delivery and distribution business on behalf of Company X. Company X invoices you for all products collected from their warehouse. Upon delivery, Company X issues you a credit note. Company X pays you a commission. You do not receive any of the sales income into your bank account.
You do not have an equitable interest in the sales income of Company X Billed Customers as they have not been beneficially derived. Accordingly the sales income of Company X Billed Customers are excluded from your ordinary income, and therefore do not count towards your annual turnover as per subsection 328-120(1) of the ITAA 1997.
Connected entities and affiliate's
Under section 328-110 of the ITAA 1997 you are a small business entity for an income year if you carry on a business in the current year and your aggregated turnover is less than $2 million. Under section 328-115 of the ITAA 1997 your aggregated turnover includes the turnover of any connected entities or affiliates. The definition of a connected entity is set out under section 328-125 of the ITAA 1997. The definition of an affiliate is set out under section 328-130 of the ITAA 1997.
Based on the information provided, it is accepted that Company X is not an entity that is connected with you for the purposes of section 328-125 of the ITAA 1997, and is not an affiliate of yours for the purposes of section 328-130 of the ITAA 1997.