Edited version of private advice

Authorisation Number: 1051795985997

Date of advice: 9 February 2021

Ruling

Subject: Assessable income

Question 1.

Do amounts paid from a reseller entity to "entity A's" bank account in Australia become assessable income of "entity B's" in accordance with section 6-5 of the Income Tax Assessment Act 1997 (ITAA1997) on date paid, and to be declared in that year of income?

Answer

Yes.

Question 2.

Do the amounts paid from the reseller entities to "entity A's" bank account in Australia and then transferred to "entity B's" bank account become assessable income of "entity B", in accordance with section 6-5 of the ITAA 1997 on the transfer date to "entity's B's" bank account, and to be declared in that year of income?

Answer

No, it has been established in answer to question one, that the income will become assessable income of "entity B" (which accounts for income on a cash basis) when the money is first deposited into the bank account of "entity A" (as directed by "entity B").

This ruling applies for the following periods:

Year ending 30 June 20XX

Period ending 31 December 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You operate on a cash basis of accounting for both GST and Income tax purposes and have done so since the commencement of the business.

You are a small business entity with a current turnover of less than $XXX.

After funds are derived from the reseller entities the turnover is less than $XX.

In 20XX, you became a partner in a joint venture ("JV") involving X independent parties.

Your products are distributed overseas by independent resellers

The resellers are the sales platform, where they provide the product on-line, collect the proceeds from the sale, administer the tax obligations predominantly GST in the relevant countries, hold funds until forwarding to the JV and deal with the refunds of customers.

The held funds are applied to refund claims, commission fees for the reseller and other disbursements. These are taken out by the reseller.

These resellers are independent third-party entities that have no association with the JV. They are international reseller companies.

You have advised that there are agreements which have been entered into between the resellers and the JV.

Sales funds less any commissions disbursements, refunds to customers are placed in an account set up by the resellers for the JV. These monies are held by the reseller until paid to the nominated bank account of the client.

You have received a regular flow of funds directly into the nominated bank account from the reseller companies since 20XX. You have declared these amounts at that time using a cash basis of accounting in the relevant tax returns lodged.

In 20XX, the JV business was sold to a new structure in Australia.

The new structure consists of "entity A", the holder of the intellectual property and "entity C"

The holding company is "entity A" and owns 100% of the shares in "entity C". The shareholders of "entity A" will be the partners of the JV.

There have been ongoing disputes with the JV partners in relation to distribution entitlements. It has been agreed by all parties that funds will be remitted to the new Australian holding company, "entity A".

"Entity A" is the only authorised entity to receive these funds. This arrangement was put in place because the resellers are dealing with the new structure for the sales and for simplicity they wanted to deal with the new structure.

The funds from the JV operations are for the benefit of "entity B" and is subject to a Deed of Settlement. Funds have been remitted and received by "entity A" for the benefit "entity B" since July 20XX.

"Entity A" is acting as an agent in ensuring that these funds are remitted by the reseller according to an agreed schedule of payments and transferred to "entity B" as the beneficial owner of the funds.

"Entity A" will receive a small commission fee for providing these services.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 6

Income Tax Assessment Act 1997 section 6-5