Private ruling: Capital Gains Tax - Extension of time to make a choice to apply the small business concession retirement exemption.
Date of advice: 16 May 2018
Published: July 2018
Ruling period: 1 July 2016 to 30 June 20XX | 1 July 2017 to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow you further time until 30 June 2018 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 capital gain tax event that arose in the 2016-17 financial year? | A1: Yes

Relevant facts and circumstances: During the 201X income year The Trustee of the Unit Trust (You) disposed of a business that you operated in a place. You made a capital gain. You lodged your income tax return for the 201X year on a date in 201X, applying the 50% general discount and the 50% active asset discount to the capital gain. You did not apply any other small business concessions (SBC) to reduce the gain further. At the time you lodged the return, you had not considered that some of your unit holders may be eligible to apply the SBC retirement exemption. Your accountants do not handle the tax affairs of your unit holders, and there was a failure of communication between your accountants and the various unit holders’ accountants. When your accounts were provided to the individual unit holders, the issue of the SBC concessions not having been considered was identified. You meet the requirements to be entitled to the SBC retirement exemption.

Relevant legislative provisions: Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Part 3-3

Reasons for decision: Summary: The Commissioner will grant an extension of time under paragraph 103-25(1)(b). | Detailed Reasoning - Detailed reasoning: 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. A choice to obtain the small business retirement exemption 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). Under subsection 103-25(2), the way you prepare your income tax return is sufficient evidence of the making of the choice. Paragraph 103-25(3)(b) however, contains an exception in relation to the small business retirement exemption, as subsections 152-315(4) and (5) require the choice for this exemption to be made in writing. The general rule is that a choice available under the capital gains tax (CGT) provisions, once made, cannot be changed. 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 return that has been lodged including a capital gain by error that did not represent the instructions of the taxpayer does not represent a valid choice. If the Commissioner allows further time, the taxpayer may later make a choice for a CGT concession and amend their return to reduce or disregard the capital gain. You have requested the Commissioner to allow further time for you to make the choice and apply the retirement exemption. In determining if the discretion to allow further time would be exercised, the Commissioner has considered the following factors: (a) 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) (b) 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) (c) unsettling of people, other than the Commissioner, or of established practices; (d) fairness to people in like positions and the wider public interest (e) whether any mischief is involved; and (f) consequences of the decision. | Detailed Reasoning - Application to your circumstances: An oversight in the preparation of your income tax return brought about by a lack of communication between different accounting firms meant that the possibility of applying the retirement exemption to part of the capital gain was not considered. Effectively you did not make a valid choice. After consideration of the above factors and your circumstances, the Commissioner has exercised his discretion and granted you an extension to make the choice to apply either the small business retirement exemption.