Private ruling: Capital gains tax and small business concessions
Published: May 2015
Ruling period: Year ended 30 June 2013. | Year ended 30 June 2014. | Year ending 30 June 2015.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for you to choose to apply or to not apply the small business retirement exemption to a capital gain? | A1: Yes. | Q2: Can you make the choice to utilise the small business capital gains tax (CGT) retirement exemption by lodging your amended tax return? | A2: No. | Q3: Can you pay the CGT exempt amount under the small business retirement exemption up to seven days after making the choice to utilise the small business CGT concession? | A3: Yes.

Relevant facts and circumstances: You acquired commercial premises (the property) in the 19XX financial year and commenced business operations from the property. You sold the property and realised a capital gain. A sale of contract was exchanged in the 20XX financial year. Settlement occurred in the 20YY financial year. A major shareholder (an individual) owned the majority of shares issued. The major shareholder is over 55 years old. The major shareholder satisfied the basic conditions of subdivision 152A of the ITAA 1997 as well as the conditions of subdivision 152D of the ITAA 1997 for the income year in which the CGT event occurred. In preparing your Income tax return (ITR) the previous tax agent failed to include the capital gain and failed to advise you of the availability of the small business CGT concessions. Due to the general lack of service and little or no contract from the previous tax agent, you changed tax agents. Your new tax agent discovered that the capital gains and the application of the small business CGT concessions had not been considered at all. You would like to choose the small business CGT concession - retirement exemption.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 103-25(1). | Income Tax Assessment Act 1997 section 152-325.

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 (subsection 103-25(1) of the ITAA 1997). 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. 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 the choice for this exemption to be made in writing. The CGT exempt amount must also be specified in writing. Section 152-325 of the ITAA states a company must make a payment (whether directly or indirectly through one or more interposed entities) to at least one of its CGT concession stakeholders if the company receives an amount of capital proceeds from a CGT event for which it makes a choice under this Subdivision. The payment must be made by the later of: • 7 days after the company or trust makes the choice; and • 7 days after the company receives an amount of capital proceeds from the CGT event | Detailed Reasoning - Application to your circumstances: An oversight by your previous tax agent meant that the capital gain resulting from the sale of the property was not included in your tax return. Due to the advice of your previous accountant, you did not consider the relevant CGT concessions and effectively have not made a choice. 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 is allowed for you to make the choice to apply the retirement exemption. You must make a choice in writing to apply the retirement exemption. You have up to 7 days after making that choice to make the payment to your CGT concession stakeholder.