Reporting requirements under the Payment Times Reporting Scheme can change after a merger or acquisition.
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The effect of a merger or acquisition on reporting requirements depends on whether it resulted in a change in the entity’s ABN status.
A new constitutionally covered entity (CCE) with a new ABN created as a result of a merger or acquisition, that satisfies the requirements to be a reporting entity in its first income year, will need to report in its second income year. This is because its first income year is its most recent income year for determining its total income.
A CCE involved in a merger or acquisition that continues to operate with an existing ABN, may be required to report if it meets the eligibility requirements (the scheme’s income and activity tests). The entity may meet these requirements in its own right or as a member entity of a controlling corporation.
An entity that ceases to exist because of an acquisition by or merger with another entity, will cease to be a reporting entity. It's no longer required to report.
Acquisition of a business that continues to trade
On 31 December:
- Business X recorded a total income of $110 million
- Business Z recorded a total income of $150 million.
Both have standard financial years (1 July to 30 June).
Business X was acquired by Business Z on 1 January and continues to trade. Business Z is the controlling corporation.
At the end of the financial year on 30 June:
- Business X recorded a total income of $50 million for the period after it was acquired
- Business Z recorded a total income of $300 million.
Both businesses are reporting entities because the combined total income of the group was greater than $100 million. Business X also has a total income above the member threshold of $10 million. They both need to submit a payment times report for 1 January to 30 June.
Business ceases to exist after merger
Business X had a total income of $110 million in its most recent income year. Business Z had a total income of $500 million in its most recent income year.
Business X was acquired by Business Z before the end of its most recent income year. Business X ceases to exist under its existing ABN and will now only trade as Business Z.
Because Business X is no longer an entity, it isn't required to submit a payment times report and is no longer a reporting entity. It doesn't have to apply to the Regulator to cease being a reporting entity.
As Business Z continues to trade with an existing ABN, it will need to submit a payment times report.
Treatment of total income for mergers and acquisitions
When an entity satisfies the other reporting requirement, it becomes a reporting entity at the start of an income year based on its total income in its most recent income year (the previous income year).
To determine the combined total income of the members of a group, the controlling corporation must consider whether an entity in their group has merged, been acquired or ceased to exist in the most recent income year.
Entity no longer in group
To calculate the combined total income of a group, only the total income of member entities that are in the group at the start of the current income year are included. An entity in a group in the most recent income year but no longer in that group, isn't included in the calculation of all the member entity’s most recent total income. This is because it isn't a member of the controlling corporation’s group at the time of the calculation.
If there was a new member of a group in the most recent income year (for example, through a merger or acquisition) its total income for the time they were a member is included in the group’s combined total income. For example, an entity that was a member of the group for the last 3 months of the most recent income year should have that 3 month period of total income included in the controlling corporation’s group combined total income.
An entity that became a member of a controlling corporation’s group in the most recent income year should assess its income against the income threshold based on when it was a member. For example, if it was a member of the group for the last 6 months of its most recent income year it should consider its total income calculated for that 6 month period.
If it's not possible to determine the actual total income earned for the period the new member was part of the group, then they should estimate it based on a proportion of their total income for the most recent income year. For example, if the new member was a part of the controlling corporation’s group for the last 6 months of the most recent income year, their total income should be 50% of their total income for that income year.
Business Z (a non-reporting entity) and Business X (a non-reporting entity) have standard financial years.
At 30 June 2021:
- Business Z recorded a total income of $25 million
- Business X recorded a total income of $40 million.
Business Z acquires Business X on 1 January 2022. It becomes a group and Business X continues to operate.
On 30 June 2022:
- Business Z has a total income of $50 million
- newly acquired Business X has a total of $40 million before the acquisition. It also has $40 million after the acquisition (a total of $80 million).
Only the total income earned after Business X was acquired is used to determine the group’s combined total income (presuming Entity Z is now a controlling corporation), that is $40 million.
- The group does not initially meet the combined total income threshold. This is because its most recent combined total income would be $90 million (rather than the total $130 million). Therefore, both Business X and Z would not be reporting entities in that income year.
- The group may meet the combined total income threshold in the next income year. For example, if the group earns a combined total income of $130 million in the next income year and Business X has a total income of at least $10 million. If so, both businesses become reporting entities under the Payment Times Reporting Scheme in that income year.