Private ruling: Extension of time to opt in to Part 3 of Schedule 5 to the Tax Laws Amendment (2010 Measures No. 1) Act 2010
Date of advice: 18 January 2017
Published: June 2017
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner of Taxation exercise his discretion to allow further time for the taxpayer to make the choice to apply the amendments in Part 3 of Schedule 5 to the Tax Laws Amendment (2010 Measures No. 1) Act 2010 ? | A1: Yes.

Relevant facts and circumstances: ● The taxpayer is the head entity of a consolidated group for income tax purposes. The taxpayer is part of a closely-held family group. ● The group was in existence prior to the introduction of the Tax Laws Amendment (2010 Measures No. 1) Bill 2010 (which would become the Tax Laws Amendment (2010 Measures No. 1) Act 2010 ) into the House of Representatives on 10 February 2010. ● The taxpayer is considering entering into transactions under which subsidiary members of its consolidated group may exit the consolidated group. ● The taxpayer's election to opt into the amendments made by Part 3 of Schedule 5 to the Tax Laws Amendment (2010 Measures No. 1) Act 2010 , if made, would not result in the need to amend any income tax assessments already issued.

Relevant legislative provisions: Tax Laws Amendment (2010 Measures No. 1) Act 2010 Schedule 5, item 35.

Reasons for decision: Summary: Item 35 in Schedule 5 to the Tax Laws Amendment (2010 Measures No. 1) Act 2010 provides: (1) The amendments made by this Part apply in relation to an entity that becomes a subsidiary member of a consolidated group or MEC group on or after: (a) if the head company of the group makes a choice in accordance with subitems (2) and (3) - 1 July 2002; or (b) otherwise - the day on which the Bill that became this Act was introduced into the House of Representatives. (2) A choice mentioned in paragraph (1)(a) must be made: (a) on or before 30 June 2011; or (b) within a further time allowed by the Commissioner. (3) A choice mentioned in paragraph (1)(a) must be made in writing. The Bill that became the Tax Laws Amendment (2010 Measures No. 1) Act 2010 , namely the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, was introduced into the House of Representatives on 10 February 2010. Subitem 35(2)(b) confers a discretion on the Commissioner to extend the period in which a taxpayer may opt into the new rules beyond the ordinary deadline of DDMMYY. Neither the legislation nor the explanatory memorandum set out any criteria for the exercise of this discretion. Therefore, criteria and factors to be considered must be determined by reference to the words and purpose of the surrounding legislation in its context. Part 3 of Schedule 5 to the Tax Laws Amendment (2010 Measures No. 1) Act 2010 makes a number of changes to Part 3-90 of the Income Tax Assessment Act 1997 , which is about consolidated groups. The amendments replace the old rules, which calculated a 'pre-CGT factor' based on the relative market values of pre-CGT and post-CGT non-current assets held by group members. The new rules calculate a 'pre-CGT proportion' based on the relative market values of pre-CGT and post-CGT interests in subsidiary members of the consolidated group. The purpose of the amendments, as stated in the explanatory memorandum, was to overcome concerns that 'small and medium sized groups that have a significant proportion of pre-CGT membership interests may be disadvantaged by electing into the consolidation regime.' Therefore the amendments were made to apply retrospectively to those groups who, considering the amendments to be advantageous to them opted in. In light of the purpose of the amendments, the purpose of the discretion is to allow the Commissioner to ameliorate any injustice or frustration of the purposes of the amendments which would result from a strict insistence on the election being made prior to 1 July 2011. The discretion allows Therefore, the discretion to extend time may be exercised where a taxpayer perceives an advantage in opting into the new rules and it would not otherwise be unreasonable. The existence of a default deadline of 1 July 2011 suggests that the discretion to extend time was not intended to be open-ended. For example, it would not generally be expected that the legislature intended that the taxpayers who had already lodged their returns could make a retrospective election which would result in the need to amend assessments which had already issued. In this case, the election would not affect any assessments which have issued. While the election would have retrospective application in terms of modifying tax attributes which accrued in past years, those tax attributes will not have substantive effect in any assessment until the period in which a subsidiary exits the group and a CGT event occurs in relation to shares in that entity. That has not yet occurred. In this case, the taxpayer had not considered the relative effects of the old rules and the new rules prior to the ordinary deadline of 1 July 2011. Given that the amendments had no effect for the taxpayer at that time, it was not unreasonable for the taxpayer to not turn its mind, at considerable expense in terms of professional fees, to those amendments. It is only now, when it is considering entering into transactions which may crystallise the effects of the old rules or the new rules, that its attention has been drawn to them. Therefore, in the circumstances, it is reasonable for the Commissioner to exercise his discretion to extend the period in which the taxpayer may opt in to the new rules.