Private ruling: Capital gains tax – small business concessions – extension of time – to make a choice
Date of advice: 11 October 2017
Published: March 2018
Ruling period: Income year ending 30 June 2018
Date scheme commenced: 1 July 2017.

Ruling: Q1: Will the Commissioner exercise his discretion under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow further time for the you to choose to apply the exemptions in Subdivisions 152-C and 152-E of the ITAA 1997 to a capital gain that arose in the 2014-15 income year? | A1: Yes.

Relevant facts and circumstances: Company A was incorporated after 20 September 1985. All of the XX shares issued by Company A were owned by Company B (you) as the trustee of a trust (the Trust). You entered into a contract to sell some of your shares in Company A to Company XYZ. A Deed of Amendment (the Deed) was created to modify the number of shares you were selling to Company XYZ to XX shares. Shortly after the Deed was created, XX of your shares in Company A were transferred to Company XYZ and you made a capital gain of $X from the sale of the shares. You used the services of a former tax agent to prepare and lodge the Trust’s income tax returns. You and the tax agent considered that the capital gains tax event occurring as a result of the disposal of your Company A shares occurred in the 2015-16 income year and no capital gain amount was included in your 2014-15 income tax return. You discussed the disposal of the shares with your new tax agent, and after reviewing the relevant documentation and the original statements included in your income tax returns it is viewed that the capital gains tax event in relation to the disposal of the XX shares occurred during the 2014-15 income year. You are requesting that the Commissioner exercises his discretion to allow you further time to make a choice under section 103-25 of the ITAA 1997 so that you can apply the exemptions contained in Subdivisions 152-C and 152-E to the capital gain made on the disposal of your XX Company A shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152. | Income Tax Assessment Act 1997 Subsection 103-25(1).

Reasons for decision: Summary: There are four capital gains tax (CGT) small business concessions available to eligible small businesses. The taxpayer, if eligible, has to choose to apply these concessions, except for the 50% active asset reduction which will automatically be applied unless the taxpayer chooses otherwise. The general rule is that a choice available under the CGT provisions once made can not 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 under paragraph 103-25(1)(b) of the ITAA 1997. A taxpayer who has considered the application of the CGT concessions and chosen a particular concession has made a choice which cannot later be changed. However, a taxpayer who did not consider the CGT concessions and accordingly included a capital gain in their income tax return has not made a choice and can, if the Commissioner allows further time, later make a choice for a CGT concession to apply and amend their return to reduce or disregard the capital gain. In determining if the Commissioner should use his discretion to allow an extension of time the following will be considered: ● there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension; ● account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension; ● account must be had of any unsettling of people, other than the Commissioner, or of established practices; ● there must be a consideration of fairness to people in like positions and the wider public interest; ● whether there is any mischief involved; and ● a consideration of the consequences. | Detailed Reasoning - Application to your circumstances: You and your former tax agent were of the opinion that the CGT event arising in relation to the disposal of your XX Company A shares had occurred during the 2015-16 income year. Therefore, no capital gain amount was included in your 2014-15 income tax return. You engaged the services of a new tax agent and following discussions with them it is now considered that the CGT event occurring in relation to the disposal of your Company A shares occurred during the 2014-15 income year. You lodged a request for the Commissioner to exercise his discretion to allow you further time to make the choice and apply the CGT small business concessions contained in Subdivisions 152-C and 152-E of the ITAA 1997 to the capital gain made on the disposal of the shares in the 2014-15 income year. Having considered the circumstances and the factors outlined above the Commissioner will grant an extension of time for you to make the choice to apply the small business 50% reduction exemption contained in Subdivision 152-C of the ITAA 1997 and small business roll-over exemption contained in Subdivision 152-E of the ITAA 1997 to the capital gain made on the disposal of your Company A shares. | Detailed Reasoning - Further issues for you to consider: Eligibility for the small business concessions In your request you have indicated that you qualify for the relevant small business CGT concessions. The Commissioner has not considered your eligibility for the small business CGT concessions in this ruling. You should ensure that you satisfy the basic conditions and any other conditions relevant to the small business 50% reduction exemption and the small business roll-over exemption. More information is available in the publication Capital gains tax concessions for small business 2014-15, which is available on our website www.ato.gov.au .