Private ruling: Small business concessions
Date of advice: 26 November 2015
Published: January 2016
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner allow an extension of time as provided in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for you to choose to apply the small business retirement exemption to a capital gain? | A1: Yes.

Relevant facts and circumstances: You purchased a farming property. The property consists of your main residence together with agricultural land. A primary production business has been carried on by the taxpayer during the entire period of ownership. You decided to transfer 50% of the property to your spouse so that the property could be held jointly. At no stage did you contemplate that the transfer would constitute a disposal for capital gains tax purposes. The transfer only came to the attention of your tax agent recently. You are now aware of the CGT implications of your actions and have taken immediate steps to ensure the taxation obligations from the CGT event are dealt with. You meet the basic conditions for the small business CGT relief and any additional requirements for the retirement exemption.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 103-25(1) | Income Tax Assessment Act 1997 subsection 103-25(2) | Income Tax Assessment Act 1997 paragraph 103-25(3)(b) | Income Tax Assessment Act 1997 subsection 152-315(4)

Reasons for decision: Summary: You may choose to disregard or defer all or part of a capital gain under the small business CGT concessions if you satisfy certain conditions. The general rule is that a choice available under the CGT provisions, once made, cannot be changed. Generally, such a choice must be made by the time the income tax return is lodged, or within such further time as the Commissioner allows (paragraph 103-25(1)(b) of the ITAA 1997). Under subsection 103-25(2) of the ITAA 1997, the way you prepare your income tax return is sufficient evidence of the making of the choice. Paragraph 103-25(3)(b) of the ITAA 1997, however, contains an exception in relation to the small business retirement exemption, as subsection 152-315(4) of the ITAA 1997 requires the choice for this exemption to be made in writing. In determining if the discretion to allow further time would be exercised, the Commissioner considers the following factors: • evidence of an acceptable explanation for the period of extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension), • prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension), • unsettling of people, other than the Commissioner, or of established practices, • fairness to people in like positions and the wider public interest, • whether any mischief is involved, and • consequences of the decision In this case you were not aware that a capital gain had been made and therefore overlooked the small business concessions. As soon as it was discovered that a capital gain had been made, steps were taken to ensure the taxation obligations from the CGT event were dealt with. We consider this to be an acceptable explanation for the period of extension required. There would be no prejudice to the Commissioner or unsettling of people by allowing the extension. There is no mischief involved. The Commissioner considers it fair and equitable in these circumstances to exercise his discretion. An extension of time has been granted to make the choice to apply the small business CGT concessions and the retirement exemption.