Private ruling: CGT - Small business concessions
Published: June 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013
Date scheme commenced: 01 July 2011

Ruling: Q1: For the purpose of determining the aggregated turnover under section 328-115 of the Income Tax Assessment Act 1997 (ITAA 1997), does the company have to include the foreign sourced income from a foreign entity that is connected to the company? | A1: Yes.

Relevant facts and circumstances: The company is an Australian resident for tax purposes. The company is controlled by a foreign entity. The foreign entity is a non-resident of Australia for tax purposes. The foreign entity has a turnover exceeding $2 million; however it was all sourced outside of Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 6-5(3)(a), | Income Tax Assessment Act 1997 paragraph 328-115(2)(b) and | Income Tax Assessment Act 1997 subsection 328-120(1).

Reasons for decision: Summary: All legislative references unless otherwise indicated refer to the Income Tax Assessment Act 1997. Under paragraph 328-115(2)(b) your aggregated turnover includes the annual turnover for the income year of any entity that is connected with you at any time during the income year. Subsection 328-120(1) states that an entity's annual turnover for an income year, is the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business. According to paragraph 6-5(3)(a) if you are a foreign resident, your assessable income includes the ordinary income you derived directly or indirectly from all Australian sources during the income year. This implies that where you derive ordinary income does not affect the nature of that income merely the assessability of that income. Applying this principle to the definition of an entity's annual turnover in subsection 328-120(1), its total ordinary income will include its foreign sourced ordinary income derived in the course of carrying on a business regardless of the residential status of the entity. In your case, when the company calculates its aggregated turnover it must include all the income derived by the foreign entity, in the ordinary course of carrying on a business, regardless of where that income is derived or whether it was a resident of Australia for tax purposes.

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