Income threshold

Certain entities must report under the Payment Times Reporting Scheme if their annual income is above a certain level.

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• Threshold for reporting
• Most recent income year
• Total income
• Examples
• Check if your business is a reporting entity

Threshold for reporting

A constitutionally covered entity (CCE) becomes a reporting entity under the Payment Times Reporting Scheme at the start of an income year if it carries on an enterprise in Australia and for its most recent income year:

• its total annual income was more than $100 million
• for an entity that's a controlling corporation, the combined total income of the members of the controlling corporation’s group was more than $100 million
• for an entity that's a member of a controlling corporation’s group that has a combined income of more than $100 million, the total income for the member was at least $10 million.

Most recent income year

The most recent income year for an entity is its previous income year. If relevant, it's also the previous income year of its controlling corporation’s group.

Examples

An entity has a total income of over $100 million in its 2020 to 2021 income year and it meets the other eligibility criteria. It must report in its 2021 to 2022 income year.

An entity has a total income of over $10 million in its 2020 to 2021 income year and its controlling corporation’s group has a combined total income of over $100 million in the same income year. The entity must report in its 2021 to 2022 income year.

An entity begins operation and meets the eligibility criteria within its first income year. The first year of business will be treated as its most recent income year and it must start reporting in its second income year.

Total income

Total income has the same meaning as in section 3C of the Taxation Administration Act 1953.

The scheme applies this meaning of total income to all individual entities. It's not limited to entities that lodge tax returns. An entity that wouldn't ordinarily calculate its ‘total income’, needs to notionally determine it. For example, it may be part of a tax consolidated group structure, lodge a non-corporate income tax return or doesn't lodge any income threshold. They would need to determine what they would include in a tax return if they were going to submit one. 

Determining total income

Total income is an accounting system amount. It generally corresponds to the total of the relevant amounts in an entity’s financial statements or financial records for the income year, as prepared in accordance with Australian accounting standards.

For companies, 'total income’ in a given year is explained in the Australian Taxation Office’s Company tax return instructions on the Australian Taxation Office website. Key features for the purposes of the scheme are:

• Total income is a gross figure calculated in Australian dollars. It's not gross assessable income, taxable income or net accounting profit. It may include exempt income, other non-assessable income and foreign source income. Including these amounts increases total income relative to taxable income and accounting profit.
• Total income includes foreign source income and/or intra-group income. This applies where this income is included in the entity’s actual or notional total income recorded at label 6S of their company tax return.
• Total income does not include the effect of accounting expenses. The total income figure is not reduced by the costs of earning the income or carrying out the entity’s activities.

For individual entities that aren't part of a Tax Consolidated Group (TCG), total income generally corresponds to the income it records at label 6S of the company tax return, as prepared in accordance with the ATO’s company tax return instructions.

Entities that don't submit a company or other tax return

For entities that aren't required to submit an individual company or other tax return (for example, an entity that is a member of a TCG, a foreign member entity of a controlling corporation's group, or for any other reason):

• total income generally corresponds to the entity’s notional total income that it would record at label 6S of the company tax return if it was required to prepare one
• each entity, including a controlling corporation, needs to determine its notional ‘total income’. This means the income it would report as ‘total income’ if it was required to submit an individual tax return. This includes any intra-group transfers where these are included as income.

Entities that aren't required to or don't submit an individual company or other tax return, may need to go through the motions of completing one to determine their notional total income. Entities should also seek professional advice to determine their notional total income.

For other types of entities that submit non-company income tax returns (such as partnerships and trusts):

• Total income generally corresponds to the total of the relevant amounts in the entity's financial statements or financial records for the income year, as prepared in accordance with Australian accounting standards.

Controlling corporations and their members

Under the scheme, total income is individually determined for each entity. If the entity is a controlling corporation, the combined total income of all members of the group is determined. This is regardless of whether the member is a CCE or a reporting entity. The group’s combined total income is the total of each entity’s notional total income. Intra-group transfers aren't eliminated.

The combined total income of the controlling corporation’s group should include the relevant portion of any new member’s total income. This is determined from when it was acquired or became part of the group during the most recent income year.

Where an entity was a member of a group during the most recent income year, but isn't at the start of the next income year, their income isn't included in the group’s combined total income. This is because it's not a member of the group at the time of the calculation. Find more information on treatment of total income for mergers and acquisitions.

Assess income annually

Entities should assess their total income on an annual basis to determine if they need to report under the scheme. For an existing reporting entity that falls below the total income threshold, they may apply to stop reporting. They continue to be a reporting entity until the Regulator determines that they can cease to be a reporting entity.

Entities may need to seek professional advice in determining their total income under the scheme.

Examples

Australian entities

Australian entities that are CCEs and carry on an enterprise in Australia are subject to the income test.

Controlling corporation is a reporting entity, members aren't

An Australian controlling corporation has a total income of $5 million (not a tax consolidated group). There are 15 members in its group, each with a total income of $9 million. The combined total income of the group is $140 million.

Even though the controlling corporation's own total income is $5 million, it's a reporting entity because the group's combined total income is above the threshold of $100 million. The $10 million total income threshold doesn't apply to the controlling corporation as it's not a member. The member entities aren't reporting entities as they each had a total income of $9 million. This is below the income threshold for member entities.

Controlling corporation and member entities are all reporting entities

An Australian controlling corporation (of a tax consolidated group) has a notional total income of $15 million. Two members of its group, each have a notional total income of $70 million. The combined total income of the group is $155 million.

The controlling corporation is a reporting entity because the group’s combined total income is greater than the income threshold of $100 million. The member entities are also reporting entities as they each have a total income of $70 million which is above the member income threshold of $10 million.

Controlling corporation with foreign income and member entity are both reporting entities

An Australian controlling corporation (not a tax consolidated group) earns $50 million in the USA. It also earns $40 million in Australia, which it reported as total income in its Australian tax return in accordance with the ATO’s company tax return instructions. Its subsidiary business earns $20 million in Australia. The group (the corporation and its subsidiary) has a combined total income of $110 million.

As the controlling corporation is a CCE and the group has a combined total income above the income threshold of $100 million, the controlling corporation is a reporting entity. Its subsidiary is also a reporting entity as it's a member entity with a total income above the member income threshold of $10 million.

Controlling corporation and member entities aren't all reporting entities

An Australian controlling corporation (of a tax consolidated group) has a notional total income of $15 million. Entities X and Y are members of its tax consolidated group. Entity X has a notional total income of $90 million and Entity Y has a notional total income of $8 million. The controlling corporation reports a combined total income for the tax consolidated group of $105 million as reported at label 6S of the tax return (eliminating intercompany transfers as required). However, under the scheme, it determines the combined total income for the group is $113 million. This is the sum of the notional total income of the controlling corporation, Entity X and Entity Y.

The controlling corporation is a reporting entity because the group’s combined total income was $113 million, which is above the income threshold of $100 million. Member Entity X is a reporting entity as it had a notional total income of $90 million which is more than the member income threshold of $10 million. Member Entity Y is not a reporting entity as it had a notional total income of $8 million which is below the member income threshold of $10 million.

Trusts with corporate trustees

A trust, which is a CCE because it's carrying on an enterprise in a territory, has a corporate trustee (a company that acts as trustee). The trust’s reporting obligations are fulfilled by the corporate trustee. While the corporate trustee is reporting on behalf of the trust, the trust’s income is not assigned to the trustee. The corporate trustee may also have reporting obligations in relation to its own total income. The corporate trustee does not combine its income with the trust’s income when assessing whether it has separate reporting obligations.

Foreign entities

Foreign entities are CCEs and may be reporting entities if they meet the scheme's income test and activity tests. A foreign entity will meet the activity test if, while based overseas, it carries on an enterprise in Australia. For example, through an Australian-based office.

Foreign head entity isn't a reporting entity, but local Australian operation is

A foreign entity has a local Australian operation in an Australian corporation operating in the ACT. The foreign entity's total income was $5 million. This was earned in Australia. The local operation had a total income of $150 million. While the foreign entity isn't a controlling corporation, it is a CCE and carries on an enterprise in Australia. It isn't a reporting entity as it's income threshold is below $100 million. The local operation is a reporting entity as its income is above the threshold of $100 million.

Foreign head entity is a reporting entity, but local subsidiary isn't

A foreign corporation earns $50 million in the USA and $140 million in Australia. Its Australian subsidiary earns $20 million in Australia.

The group earns a combined total income of $210 million. However only $140 million was recorded as total income in the foreign corporation’s Australian tax returns at label 6S and $50 million was recorded as income in the USA.

Under the Act, the foreign corporation can't be a controlling corporation as it's formed outside of Australia and is not a body corporate incorporated in Australia. Because it's not a controlling corporation, the group’s combined total income isn't considered.

The foreign corporation is a reporting entity because it's a CCE carrying on an enterprise in Australia with total income above $100 million. The subsidiary isn't a reporting entity because its total income is below the scheme's $100 million income threshold.

Check if your business is a reporting entity

Image: Flowchart to assess whether a business is a reporting entity under the Payment Times Reporting Scheme.

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Related content

• Eligibility criteria
• How to report