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Edited version of private advice
Authorisation Number: 1052030902422
Date of advice: 14 September 2022
Ruling
Subject: Business restructure
Question
Will the income derived from your online platform world-wide sales be considered as company's income if you incorporate and transfer your sole trader business on the online platform to the company?
Answer
Yes. The income derived from your online platform world-wide sales will be considered as company's business income once you incorporate and transfer your existing sole trader business on the online platform to the company.
This ruling applies for the following period:
Year to be ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are a writer and sells electronic books online, primarily via an online platform online store in a foreign country using your online platform profile as an individual seller.
You are an Australian resident for tax purposes and declared income in your Australian income tax returns.
You have a registered as an individual in the foreign country and completed the foreign country tax forms each year.
You are listed as an individual for tax purposes on that online platform.
Movie options are being discussed and you proposed to incorporate a company in Australia under the Corporations Act 2001 to take over the business you are carrying on. Your family members will be also shareholders of the company, including your wife who will be doing editing work and your daughter who will work on marketing.
The company will be an Australian resident for tax purposes.
The online platform provider has advised you that to change the supplier from an individual to a company on your online platform supplier account, you can simply update your online platform Seller profile and change the Seller payee name from being as an individual to a company. No other documentation is required to update the profile. The online platform accepts any bank account the seller wishes the fund to be put into.
The terms and conditions of the Agreement provided relevant clauses for you can enter into the Agreement as a business entity.
Assumptions
You will incorporate the company under the Corporations Act 2001 to take over your existing sole trader business before your update your online platform user profile.
The income derived from the online platform's world-wide sales will be deposited into the company's bank account.
Further issues for you to consider
We have limited our private ruling to the questions raised in your application. There may be related issues that you should consider, including:
• Tax consequences on incorporating your business
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 states a resident of Australia is taxable on income derived directly or indirectly from all sources. Generally, the recipient of the income is assessable on the income.
The terms and conditions of the online platform agreement provided relevant clauses for you to enter into the Agreement as a business entity.
To change the supplier from an individual to a company on your online platform supplier account, the online platform provider has advised you that you can simply update your online platform Seller profile and change the Seller payee name from being as an individual to a company. No other documentation is required to update the profile.
This indicates that the online platform provider accepts the contracting party in the agreement between the online platform provider and you will be changed from an individual to a company. Based on this, we consider the company will be the seller and the receiver of the income derived from the online platform world-wide sales on the online platform supplier account. Therefore, the income will be considered as the company's business income.
Further, where a company is formed to take over an existing business, it often occurs that the date at which the business is deemed to be taken over is prior to the date of incorporation of the company.
It is clear that a company cannot earn income before it comes into existence (Kelner v Baxter (1866) LR 2 CP 174).
Further guidance on tax implication of incorporating your business can be found by searching 'Incorporating your business - tax implications' on www.ato.gov.au.