Private ruling: Income tax - aggregated turnover
Date of advice: 10 March 2026
Published: 29 June 2026

Ruling: Q1: Does the Company's aggregated turnover include the Other Company's annual turnover under paragraph 328-115(2)(b) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Does the Company's aggregated turnover include the Other Company's annual turnover under paragraph 328-115(2)(c) of the ITAA 1997? | A2: No | Q3: Does Item 2 of the table in subsection 355-100(1) of the ITAA 1997 apply to the Company's entitlement to a tax offset arising under that subsection? | A3: No | Q4: If the Other Company increases its equity interest in the Company to greater than 40% and less than 50%, would the Commissioner determine that the Other Company does not control the Company under subsection 328-125(6) of the ITAA 1997? | A4: No This private ruling applies for the following periods: Years ended 30 June 2025 to 2029




1. The Other Company is a not-for-profit entity limited by guarantee with significant turnover that owns an interest in the Company. The Other Company also holds interest in other entities. | 2. The Other Company is a tax exempt entity. | 3. The Company operates independently from the Other Company and is focussed on the development and commercialisation of its business activities. | 4. Individual A has been appointed as Managing Director of the Company and is leading the company's research and development initiatives. | 5. Individual A is a former employee and board member of the Other Company. Individual A has since resigned from his employment with the Other Company and from the Other Company board. | 6. The Company's only other director is another individual (Individual B), who has been appointed as the Other Company's nominated representative. | 7. The Other Company holds less than 40% of the shares in the Company. The remaining shares are held by a discretionary trust, the Trust. | 8. There are no preference or other classes of shares. | 9. The Company may require additional capital to fund its Research and Development activities. The Other Company may increase its shareholdings to greater than 40% and less than 50% if there is a requirement. | 10. The Company shareholder agreement (Shareholder Agreement) contains several key clauses that outline how the entity operates: | a. the directors, Individual A and Individual B (together referred to as the Individuals), are jointly responsible for the overall direction and strategic management of the Company. | b. any vacancy in the director position appointed by the Other Company may only be filled by a person nominated by the Other Company, while any vacancy in the director position appointed by the Trust may only be filled by a director appointed by the Trust. | c. Individual A, as managing director, is responsible for the day-to-day management and operations of the company. | d. the agreement does not include any provisions permitting the Other Company to remove Individual A as a director, nor does it permit the Trust to remove Individual B as a director. | 11. Further to this, the Company's constitution outlines board reserved matters and shareholder reserved matters. These reserved matters require the approval of all directors or shareholders, respectively, and include many significant matters typically associated with ownership of a business activity, including matters affecting the entity's constitution, funding, structure and management. | Summary: 1. The Company's aggregated turnover does not include the Other Company's annual turnover under paragraph 328-115(2)(b). | Relevant legislation: 2. Division 328 relevantly states: | Meaning of aggregated turnover: (1) Your aggregated turnover for an income year is the sum of the relevant annual turnovers (see subsection (2)) excluding any amounts covered by subsection (3). | Note: For small business CGT relief purposes, additional entities may be treated as being connected with you or your affiliate undersections 152-48 and 152-78. | (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. | (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. | Meaning of connected with an entity: (1) An entity is connected with another entity if: | (a) either entity controls the other entity in a way described in this section; or | (b) both entities are controlled in a way described in this section by the same third entity. | Note 1: See Subdivision 106 - B if a CGT asset of yours is vested in a trusteein bankruptcy or a liquidator. | Note 2: See Subdivision 106 - C if you are absolutely entitled to a CGT asset as against the trustee of a trust. | Note 3: See Subdivision 106 - D if you provided security over an asset to another entity. | Direct control of an entity other than a discretionary trust | (2) 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. | Direct control of a discretionary trust | (3) An entity (the first entity ) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity, its affiliates, or the first entity together with its affiliates. | (4) An entity (the first entity ) controls a discretionary trust for an income year if, for any of the 4 income years before that year: | (a) the trustee of the trust paid to, or applied for the benefit of: | (ii) any of the first entity's affiliates; or | (iii) the first entity and any of its affiliates; | any of the income or capital of the trust; and | (b) the percentage (the control percentage ) of the income or capital paid or applied is at least 40% of the total amount of income or capital paid or applied by the trustee for that year. | Note: Section 328 - 112 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007 - 08, 2008 - 09, 2009 - 10 and 2010 - 11 income years. | (5) An entity does not control a discretionary trust because of subsection (4) if the entity is: | (b) a deductible gift recipient. | Commissioner may determine that an entity does not control another entity | (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. | Indirect control of an entity | (7) This section applies to an entity (the first entity ) that directly controls another entity (the second entity ) as if the first entity also controlled any other entity that is directly, or indirectly by any other application or applications of this section, controlled by the second entity. | (8) However, subsection (7) does not apply if the second entity is an entity of any of the following kinds: | (a) a company shares in which (except shares that carry the right to a fixed rate of dividend) are listed for quotation in the official list of an approved stock exchange; | (b) a publicly traded unit trust; | (c) a mutual insurance company; | (d) a mutual affiliate company; | (e) a company (other than one covered by paragraph (a)) all the shares in which are owned by one or more of the following: | (i) a company covered by paragraph (a); | (ii) a publicly traded unit trust; | (iii) a mutual insurance company; | (iv) a mutual affiliate company. | Application to your circumstances: 3. Relevantly, as neither the Company or the Other Company, together with their respective affiliates, has rights to at least 40% of the distribution of income or capital by the other entity, paragraph 328-125(2)(a) is not satisfied. | 4. Nor does either entity, together with its affiliates, own, or have the right to acquire ownership of, equity interests that could give the other at least 40% voting power in it. Thus paragraph 328-125(2)(b) is not satisfied. | 5. The Trust holds the other shares in the Company. If the Other Company controls the Trust, then subsection 328-125(7) may apply such that the Other Company is taken to have greater rights to interest, capital and voting power in the Company. | 6. The relevant control tests for a discretionary trust are contains in subsections 328-125(3) and (4). | 7. There is no evidence that the Trust acts, or could reasonably be expected to, act in accordance with the direction or wishes of the Other Company. | 8. Thus, the Other Company will not be taken to control the Trust under subsection 328-125(3). | 9. Subsection 328-125(5)(a) specifically prevents an entity that is an exempt entity being taken to control a discretionary trust under subsection (4). | 10. Thus, the Other Company is not taken to control the Company and the Company's aggregated turnover does not include the Other Company's annual turnover under paragraph 328-115(2)(b). | Summary: 11. The Company's aggregated turnover does not include the Other Company's annual turnover under paragraph 328-125(2)(c). | Relevant legislation: 12. Division 328 relevantly states: | (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. | (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. | Note: For small business relief purposes, a spouse or a child under 18 years may also be an affiliate under section 152-47. | Example: A partner in a partnership would not be an affiliate of another partner merely because the first partner acts, or could reasonably be expected to act, in accordance with the directions or wishes of the second partner, or in concert with the second partner, in relation to the affairs of the partnership. | Directors of the same company, or the company and a director of that company, would be in a similar position. | Application to your circumstances: 13. Paragraph 328-125(2)(c) provides that an entity's aggregated turnover includes the annual turnover of its affiliates. | 14. The Commissioner does not consider that the Other Company acts, or could reasonably be expected to act, in accordance with the directions or wishes of the Company, or in concert with the Company, in relation to the Other Company's business affairs for the purposes of subsection 328-130(1) as: | a. the entities are independently operated from each other | b. there are no common individuals owning/operating/controlling the two entities, and | c. there is no other evidence that the Other Company acts, or could reasonably be expected to, act in accordance with the direction or wishes of the Company. | 15. Thus, the Other Company's aggregated turnover does not include the Company's annual turnover under paragraph 328-125(2)(c). | Summary: 16. Item 2 of the table in subsection 355-100(1) does not apply to the Company's entitlement to a tax offset arising under that subsection. | Relevant legislation: 17. Section 67-30 states: | Refundable tax offsets - R&D: (1) A tax offset to which an R&D entity is entitled under section 355-100 (about R&D) for an income year is subject to the refundable tax offset rules if the amount of the tax offset is worked out in accordance with item 1 of the table in subsection 355-100(1) (disregarding subsection 355-100(3)). | Note: Otherwise, the tax offset will be a non-refundable tax offset (see item 35 of the table in subsection 63-10(1)). | 18. The table in subsection 355-100(1) states: | the R&D entity's aggregated turnover for the income year is less than $20 million (and item 2 of this table does not apply) | the R&D entity's corporate tax rate for the income year, plus 18.5 percentage points | at any time during the income year an exempt entity, or combination of exempt entities, would control the R&D entity in a way described in section 328 - 125 (connected entities) if: | (a) references in section 328 - 125 to 40% were references to 50%; and | (b) subsection 328 - 125(6) were ignored | the R&D entity's corporate tax rate for the income year | Note 1: The tax offset will be a refundable tax offset if item 1 of the table applies (see section 67 - 30). | Note 2: The tax offset is increased under subsection (1A) of this section if item 2 or 3 of the table applies. | Application to your circumstances: 19. The Other Company is an exempt entity that owns less than 40% of the shares in the Company. The remaining shares are held by a non-exempt entity. | 20. The Other Company doesn't control the Company for the same reasons discussed under Question 1, with references to 40% being changed to 50%. | 21. Thus, Item 2 of the table in subsection 355-100(1) does not apply to the Company's entitlement to a tax offset arising under that subsection. | 22. We note that this would remain the case if the Other Company increased its control percentage to less than 50% as this is still below the required 50% for Item 2 of the table in subsection 355-100(1) to apply. | Summary: If the Other Company increases its shareholdings in the Company to greater than 40% and less than 50%, the Commissioner would not determine that the Other Company does not control the Company under subsection 328-125(6). | Relevant legislation: 23. The relevant legislation is contained above under Question 1. | 24. Paragraph 6 of TD 2023/5 explains that: | The statutory condition for exercising the Commissioner's discretion requires that the Commissioner positively conclude that there is actual control of the test entity by a third entity or entities. It is not sufficient to merely show that the first entity does not have actual control of the test entity. | 25. TD 2023/5 further explains that: | 11. Sole or primary responsibility for the day-to-day management of the affairs of the test entity, while not irrelevant to the question of who controls that entity, does not of itself constitute control for the purposes of the Commissioner's discretion in subsection 328-125(6). The context of the aggregated turnover rules in Subdivision 328-C, and the concept of 'control' that underpins the primary control tests, support this view. ... | 13. Having regard to the statutory context, the nature of control relevant for the Commissioner's discretion is control over those matters typically associated with ownership of a business entity. That is, entitlements to income and capital of the entity as well as participation in decision-making on key matters affecting the entity's constitution, funding, structure and management. The latter would ordinarily include matters such as: | • decision-making on the composition and oversight of the management team | • amending the entity's constituent documents | • deciding on capital and entity restructuring proposals, the issue of new ownership interests or winding up, and | • authorising significant changes in the direction of the entity's business operations. | 14. Other ways in which an entity may be said to be 'controlled', such as the control exercised by managers with responsibility for the day-to-day conduct of the business of the entity, do not of themselves constitute control of the entity in the sense contemplated by the aggregation rules. It is necessary to distinguish control of an entity from powers in respect of the conduct of an entity's business . | 15. Managers or directors with responsibility for the day-to-day conduct of a company's business may have considerable autonomy in making significant business decisions, but this of itself is not considered 'control' of the entity for the purposes of subsection 328-125(6). ... | 17. ... The identity of who actually performs the managerial function is generally of limited relevance to the question of control of the test entity in subsection 328-125(6).... | Application to your circumstances: 26. If the Other Company increased its equity interest in the Company to greater than 40% and less than 50%, it would have: | a. rights to at least 40% of the distribution of income or capital by the Company, thus satisfying paragraph 328-125(2)(a), and | b. 40% voting power in the Company, thus satisfying paragraph 328-125(2)(b). | 27. As such, the Other Company would control the RD Entity under subsection 328-125(2). | 28. However, pursuant to subsection 328-125(6), as the Other Company's control percentage is at least 40% but less than 50%, the Commissioner may determine that the Other Company does not control the Company if he thinks that the Company is controlled by other entity/ies that do not include the Other Company or any of its affiliates. | 29. The following factors are relevant to deciding whether to exercise this discretion: | a. the Company operates as a separate and independent business with day-to-day management overseen by Individual A as Managing Director | b. the Other Company cannot remove or appoint the Managing Director; this authority rests solely with the Trust | c. the Board and Shareholder Reserved matters require the consent of all directors and shareholders, respectively | d. the directors of the Company are Individual A and Individual B | e. Individual B is a representative of the Other Company | f. the Individuals are jointly responsible for the overall direction and strategic management of the Company. | 30. Given the significance of the Board and Reserved matters, who performs the managerial function is of limited relevance in determining the control of the Company. | 31. As consent of all directors and shareholders are required for the Board and Shareholder reserved matters, it cannot be said that the Trust actually controls the Company. | 32. As such, the Commissioner does not think that the Company will actually be controlled by the Trust or any other entity/ies that do not include the Other Company or any of its affiliates. Thus, he would not exercise his discretion under subsection 328-125(6) to determine that the Other Company does not control the Company.