Private ruling: Income tax - extension of time to a make a choice
Date of advice: 21 June 2019
Published: August 2019

Ruling: Q1: Will the Commissioner allow you further time as provided in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 for you to choose to apply the small business retirement exemption to the capital gain tax event that arose in the 20YY income year? Yes. Having considered your circumstances and the relevant factors the Commissioner considers it appropriate to grant an extension of time. Year ending 30 June 2016 1 July 2015 You held an interest in the Unit Trust in the form of units through which was operated a franchise. Company A held the remaining units in the Unit Trust. Company A held interest in other franchises structured in similar ways with other unrelated third parties. In or around 20XX you acquired your interest in the Unit Trust. At this time you entered into an option agreement where the parties agreed that Company A may elect to acquire the units held by you in the Unit Trust. Company A elected to exercise this option and, under the terms of the agreement, a contract was signed in 20YY. The Units were disposed of in 20XX. Company A also elected to exercise similar options at the same time to acquire units in other trusts through which the franchises were operated. The exercise of these options and acquisition of the units in the trusts by Company A was carried out in advance of a subsequent sale of the aggregated franchises to an ASX listed company. The events leading up to the sale of the units in the Unit Trust by you were secretive and commercial in confidence as the sale of the units were connected to and preceded Company A's subsequent sale of businesses to the ASX listed company. This is because listed companies are subject to strict public disclosure laws and it was important that the information regarding the proposed transaction was not released until it was appropriate. Your tax agent requested documentation for the transaction and was provided with a transfer form dated of 20YY. They were not provided with a copy of the option agreement or the exercise notice and were unaware of its existence. You tax agent understood that the capital event occurred in the 20XX/YY financial year as they had no evidence of an earlier agreement. Your tax agent was not briefed in relation to the specifics of the transaction at the time as the purchaser required a confidentiality agreement be signed. Your controller traded the franchise store owned by the Unit Trust up to and including mid 20YY and received a distribution and profits paid in the usual manner as other years. Your tax agent had no reason to suspect that the CGT event was triggered prior to mid 20YY. Your tax agent requested from you any copies of any tax advice you were given in connection with the sale from Company A's tax advisor. They were advised that the tax advisor for Company A provided you with an ATO factsheet in relation to the Small Business CGT Concessions. You understood that the Small Business CGT Concessions would apply and therefore did not seek formal advice from your agent at that time. Upon reviewing other entities tax affairs in connection with Company A related transaction an ATO officer contacted your tax agent and asked why the capital gain on the disposal of the units in the Unit Trust was not included in your tax return for the 20YY financial year. The tax agent explained that the documentation that they had received from you indicated that the CGT event occurred in mid 20YY and would be returned in the 20ZZ financial year. The tax agent was given an extract of the Commissioner's view on the timing of the CGT event being during the 20YY financial year as after the review of the agreements entered by the other parties to the franchise stores. The reasoning for the Commissioner's view of the timing of the event was that the contracts were formed to dispose of the units in the Unit trust in the 20YY financial year. Your tax agent sourced a copy of the option agreement from you and referred the matter to an external advisor for advice on the issue. The external advisor agreed with the Commissioner's view on the timing of the CGT event. Your tax return for the 20YY financial year had already been lodged in 20ZZ without the CGT event being included and no choice had been made under Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (ITAA 1997) as you believed the event was in the 20ZZ financial year. In 20AA you lodged an amended tax return including the CGT event and chose to apply the 50% active asset reduction and the Small Business retirement Exemption from the Small Business CGT Concessions. This deadline was given to you by the ATO officer that contacted you about the timing of the CGT event. The gross capital gain was $XX. You are eligible to apply the small business concessions. Income Tax Assessment Act 1997 section 103-25