Private ruling: Small business concessions
Date of advice: 15 July 2016
Published: August 2016
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner extend the time period under subsection 152-125(4) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow further time to make the payment required by paragraph 152-125(1)(b) of the ITAA 1997? | A1: No.

Relevant facts and circumstances: You operated a business for over 15 years. You are now winding down the business. The business was a small business and had a turnover of less than $2,000,000 per annum. The land that you used to operate the business is being sold as part of the winding down. You have applied the Small Business Entity CGT 15 year exemption to the sales already made to disregard any capital gains. You will apply the concession to the sales of the remaining lots. You have had a significant individual for at least 15 years. You had substantial debts/liabilities owing to others after finishing your operations. You also incurred significant debts in preparing the lots for sale. Many of these debts were at extremely high interest rates. Accordingly, you believe it is prudent to repay these debts prior to making payment to any unitholders.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-110 | Income Tax Assessment Act 1997 section 152-125 | Income Tax Assessment Act 1997 section 152-125(1)(b) | Income Tax Assessment Act 1997 section 152-125(4)

Reasons for decision: Summary: A capital gain or capital loss is made when the CGT event which gives rise to the capital gain or capital loss happens. Where an asset is disposed of under a contract which provides for vendor finance a CGT event A1 occurs. The whole of a capital gain that is made in these circumstances is brought to account in the income year in which the relevant CGT event happens. Further, any interest received under the finance agreement is treated as assessable income in the year in which the interest income is received. Section 152-110 of the ITAA 1997 contains the 15-year exemption rule for companies or trusts conducting a small business (the entity). It applies where: • the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied for the gain; • the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event • the entity had a significant individual at all times during the whole period the entity owned the CGT asset; and • the significant individual just before the CGT event was either: (i) 55 or over and the event happened in connection with the individuals retirement; or (ii) permanently incapacitated. Where all of these conditions are satisfied, the entity can disregard any capital gain arising from the CGT event. Pursuant to section 152-125 of the ITAA 1997, if a capital gain made by a company is disregarded under the small business 15-year exemption, distributions made by the company of that exempt amount to a CGT concession stakeholder is not included in the assessable income of the CGT concession stakeholder if the company makes the payment within two years after the CGT event. The Commissioner may exercise his discretion under section 152-125(4) of the ITAA 1997 and allow further time to make payments to the concessional stakeholder. Factors to be considered include: • there should be evidence of an acceptable explanation for the period of time requested and 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; • account must be had of any unsettling of people, other than the Commissioner, or of established practices; • there must be consideration of fairness between you and other people in like positions and the wider public interest; • whether there was any mischief involved; and • consideration of the consequences. The Commissioner will generally only exercise his discretion where a taxpayer can demonstrate that they have actively sought to comply with their tax obligations, but were not able to comply through no fault of their own. In your case, you are selling your farming land and believe it is prudent to repay your debts prior to making payment to any unitholders. After considering both the relevant factors for determining whether to exercise the Commissioner's discretion and the specific circumstances of this case, we consider that your circumstances do not warrant an extension of time. This decision is based on the following reasons: • In your case you wish to use the funds to pay off debts before making payments to unitholders. This situation is not considered to be a circumstance beyond your control. Rather it is your determination on what you consider to be the best immediate use of the funds. • To allow an extension of time in your case is likely to unsettle people for the reasons discussed above, that is, you are giving priority to the making of discretionary payments in and requesting concessional treatment to be treated as exception outside the rules in order to extract this benefit. • While there is no suggestion of mischief in this case, it could not be considered fair to people in like positions to allow you an extension of time. Another application with similar circumstances would be denied. Therefore, the Commissioner will not exercise the discretion under subsection 152-125(4) of the ITAA 1997