Notice of Ruling

Overview

The Commissioner of Taxation has issued Taxation Ruling TR 2019/1 under the Income Tax Rates Act 1986 and the Income Tax Assessment Act 1997. This ruling was enacted to clarify the circumstances under which a company can be considered to be carrying on a business, specifically in the context of determining its eligibility as a small business entity for income tax purposes. This ruling finalises the draft ruling TR 2017/D7 and aims to provide certainty and guidance to taxpayers and the tax profession regarding the interpretation of these provisions. The ruling was issued by the Commissioner, Chris Jordan, and is available for review on the Australian Taxation Office website. The overarching policy objective is to ensure a consistent application of the law in determining the tax obligations of small business entities, thereby promoting fairness and compliance within the tax system.

Scope and Application

The Tax Ruling TR 2019/1 applies to companies seeking to determine their eligibility for small business entity status under the Income Tax Rates Act 1986 and the Income Tax Assessment Act 1997 for the income years 2015-16 and 2016-17. This ruling is designed to provide clarity on the criteria for when a company can be considered to be carrying on a business within the meaning of the specified sections of these Acts. The ruling is issued by the Commissioner of Taxation and pertains to the Commonwealth jurisdiction, affecting companies that operate within Australia and are subject to the Australian taxation system. The ruling does not include any specific exclusions or exemptions but provides detailed guidance on the application of the legislative provisions concerning the small business entity definition, extending its reach to all companies subject to the relevant sections of the Acts. The application of these rulings may be further clarified or expanded through subordinate instruments or subsequent rulings issued by the Commissioner of Taxation.

Key Provisions

The main operative sections of TR 2019/1 are sections 23AA, 23, and 328-110 of the Income Tax Rates Act 1986 and the Income Tax Assessment Act 1997 respectively. These sections clarify the criteria that determine when a company is considered to be carrying on a business for the purposes of qualifying as a small business entity. This ruling provides guidance on how the Commissioner interprets these provisions in the context of the 2015-16 and 2016-17 income years. The obligations and requirements imposed by TR 2019/1 primarily concern companies that wish to qualify as small business entities for income tax purposes. These companies must ensure that their activities align with the criteria outlined in the ruling, which include having an aggregated annual turnover of no more than $10 million and meeting other specified conditions. The ruling helps companies understand what activities are considered part of their business operations and how these activities can impact their eligibility for small business entity concessions. Failure to comply with the criteria set out in TR 2019/1 may result in a company being ineligible for small business entity status, which could lead to higher tax liabilities. While TR 2019/1 itself does not impose specific penalties for non-compliance, it is important to note that incorrect claims for small business entity concessions could result in additional assessments, penalties, and interest under the general provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. These penalties may include fines and other civil or criminal consequences for fraudulent claims. In summary, TR 2019/1 provides essential guidance for companies seeking to determine their eligibility for small business entity concessions. By clarifying the interpretation of key legislative provisions, it helps companies understand the requirements they must meet to qualify for these concessions. While the ruling itself does not impose penalties, non-compliance with the outlined criteria could lead to higher tax liabilities and potential penalties under other sections of the taxation Acts.