Private ruling: Small business concessions - making a choice
Published: September 2013
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

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 active asset reduction to a capital gain that arose in the 2011-12 financial year? | A1: Yes | Q2: Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of the ITAA 1997 for you to choose to apply the small business retirement exemption to a capital gain that arose in the 2011-12 financial year? | A2: Yes | Q3: Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of the ITAA 1997 for you to choose to apply the small business rollover to a capital gain that arose in the 2011-12 financial year? | A3: Yes

Relevant facts and circumstances: You owned a property (the property). During the 2011-12 financial year you entered into an agreement to sell the property. There were subsequent delays in the purchaser obtaining finance and settlement was delayed until the 2012-13 financial year. You lodged your 2011-12 tax return prepared by your previous accountant. Following the lodgment of your 2011-12 tax return, you changed accountants. Your new accountant identified that the capital gain that arose from the sale of the property had not been included in the 2011-12 tax return. When questioned by your new accountant, your previous accountant advised that they had not included any capital gain in the 2011-12 tax return as they believed no capital gains tax (CGT) event occurred until settlement occurred.

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

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 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 (subsection 103-25(1) 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 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: An oversight by your previous accountant meant that the capital gain resulting from the sale of the property was not included in your 2011-12 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.