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1 Are Fuel Tax Credits (FTC) included in the aggregated turnover test for the purposes of determining eligibility for the small business capital gains tax (CGT) concessions?

1 Yes. Question 2 Is residential rental income included in the aggregated turnover test for the purposes of determining eligibility for the small business CGT concessions? Answer 2 No. This ruling applies for the following period : Year ending 30 June 20XX The scheme commenced on: 1 July 20XX

You carry on a primary production business as a sole trader. You derived the following amounts in the 20xx-20xx financial year: •                general business trading - $x •                Fuel Tax Credits - $x •                residential rent - $x A CGT event will occur in 20xx-20xx financial year in relation to an asset you own.

Income Tax Assessment Act 1997 section 6-5 Income Tax Assessment Act 1997 Subdivision 328-C

All references are to the Income Tax Assessment Act 1997 unless otherwise mentioned. Section 328-115 of provides for the method of calculation your aggregated turnover for an income year. Aggregated Turnover An entity's aggregated turnover is defined in section 328-115 of the ITAA 1997 to be the sum of the following: •                the entity's annual turnover for the income year, and •                the annual turnover for the income year of any entity (a relevant entity) that is 'connected' or 'affiliate' with you at any time during the income year. The excluded amounts include: •                amounts that are non-assessable non-exempt income under section 17-5 (which is about GST) •                amounts of ordinary income the entity derives from sales of retail fuel •                amounts derived from dealing with associates Annual turnover

An entity's annual turnover for an income year is the total ordinary income that the entity derives in an income year in the ordinary course of carrying on a business (subsection 328-120(1) of the ITAA 1997). Broadly, your annual turnover is the total of the ordinary income derived by you and relevant entities in the income year in the ordinary course of carrying on a business. Turnover means gross income and not your net profit. Your aggregated turnover for the income year does not include income derived during the income year from: •                dealings between you and a 'connected' or 'affiliate' entity, •                entities 'connected' or 'affiliate' with you dealings between themselves, or •                a period while the entity is not 'connected' or 'affiliate' with you. Ordinary income The term 'ordinary income' is defined in section 6-5 of the ITAA 1997 as income according to ordinary concepts. An entity's annual turnover therefore includes all income according to ordinary concepts derived in the ordinary course of carrying on a business. The ordinary course of business

covers the usual transactions, customs and practices of a certain business; a term for activities that are necessary, normal and incidental to the business; common practice. The Commissioner holds the view that principles have been established that income derived in the ordinary course of carrying on a business includes amounts arising from a transaction which is an ordinary incident of the business activity of the taxpayer, although not a transaction entered into directly in its main business activity ( Chamber of Manufactures Insurance Ltd v. FC of T (1984) 2 FCR 455; 84 ATC 4315; 15 ATR 599 and C of T v. Commercial Banking Co. of Sydney (1927) 27 SR(NSW) 231). The term 'business' is defined in subsection 995-1of the ITAA 1997 to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee. 'Carrying on a business' is not defined in Division 328 of the ITAA 1997 nor is it defined elsewhere in the ITAA 1997. It therefore takes its ordinary meaning. This approach is confirmed in the Explanatory Memorandum to the Tax Laws Amendment (Small Business) Bill 2007,

which introduced the small business $2 million turnover test and as an alternative to the Maximum Net Assets Value $6 million test. At paragraph 2.15, it is stated: What does 'in the ordinary course of carrying on a business' mean? 2.15 In general, income is derived in the ordinary course of carrying on a business if the income is of a kind that is regularly or customarily derived by the entity in the course of carrying on its business, arising out of no special circumstance or event. Similarly, the income is derived in the ordinary course of carrying on a business if the income although not regularly derived, is a direct result of the normal activities of the business . 2.16 Ordinary income may be derived in the ordinary course of carrying on a business even if it is not the main type of ordinary income derived by the entity. Similarly, the income does not need to account for a significant part of the entity's overall receipts. It is sufficient that the ordinary income is of a kind derived regularly or customarily in the carrying on of a business. [Emphasis added] Fuel Tax Credit

Section 41-5 of the Fuel Tax Act 2006 (FTA) provides that you are entitled to a fuel tax credit for taxable fuel that you acquire for use in carrying on your enterprise, if you are registered for GST. Application to your circumstances We consider the FTC are derived in the ordinary course of carrying on a business. That is, they are derived out of no special circumstances or unusual event. Further, the amounts in question are derived regularly or customarily in the carrying on of your business. Therefore, the FTC are included in the calculation of your aggregated turnover. By contrast, the residential rental income should be excluded from the calculation of your aggregated turnover as it is not attributable to the ordinary activities of your business.