Private ruling: Income Tax- Commissioner’s Discretion- extension of time to make a choice
Date of advice: 31 January 2018
Published: June 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Does the incorrect inclusion of a scrip to scrip rollover exemption in a tax return, without any consideration of the small business CGT concessions constitute the making of a choice? | A1: No | Q2: Will the Commissioner exercise his discretion in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to make a choice? | A2: Yes

Relevant facts and circumstances: Prior to lodging your 20XX-XX tax return you and your company management adviser advised your tax agent that your shares in a company were being rolled into another company and scrip for scrip rollover exemption would apply. Your tax agent was concerned as the documentation at the time did not support this situation; however you advised your tax agent that appropriate documents were being prepared. On this basis of information provided to your tax agent, your 20XX-XX tax return was lodged. After your 20XX-XX tax return was lodged you did not roll your shares into the new company, instead you sold your shares to another shareholder of the other company. Your tax agent sought legal advice on the sale of the shares which confirmed the following: ● The transfer of the shares in 20XX amounted to a taxable capital gain and scrip for scrip did not apply. ● The disposal of the shares in the company is a CGT event with the cost base determined by the 20XX share sale price. ● The 20XX tax return needs to be amended. You are seeking the Commissioners discretion to extend the time so that you can choose to apply the 50% active asset small business concession.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 103-25(1) | Income Tax Assessment Act 1997 Paragraph 103-25(1)(b) | Income Tax Assessment Act 1997 Section 152-220 | Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 Subdivision 152-D

Reasons for decision: Summary: The general rule is that a choice available under the CGT provisions once made cannot be changed and such a choice must be made by the time the income tax return is lodged or within such further time as the Commissioner allows as described in subsection 103-25(1) of the ITAA 1997. Paragraph 103-25(1)(b) of the ITAA 1997 allows the Commissioner to grant an extension of time in which to make a choice. However, paragraph 103-25(1)(b) has no application once a choice has been made. Therefore the Commissioner must first consider whether a choice has been made before considering the exercise of a request for an extension of time in which to make a choice. Subsection 103-25(1) of the ITAA 1997 states that a choice that you can make must be made by the day you lodge your income tax return for the year in which a CGT event happened or within a further time as allowed by the Commissioner. The term ‘can’ is not defined and the Macquarie Online dictionary (Sixth Edition) describes it as ‘to be able to; to have the strength; means; authority to and to have permission’. Where a taxpayer does not have the authority to make a choice it is grounds for the Commissioner to allow an extension of time to make a choice about a CGT event as it is considered that no choice has yet been made. There are some circumstances when we consider you have not made a choice. These are if you lodge your tax return without being aware that: ● events have happened that required you to make a choice ● a choice was available, or ● a choice you made was not valid. This is further supported by Sherlinc Enterprises Pty Ltd and Federal Commissioner of Taxation [2004] AATA 113; (2004) 2004 ATC 2022; (2004) 55 ATR 1001 in which GA Barton M stated that taxpayers who prepare their income tax returns on the basis of choices they are not permitted to make are doing no more than purporting to make the choices in question. An entity which has not made a valid choice at the time of lodgement of an income tax return for a period during which a CGT event occurred can apply to the Commissioner for further time under paragraph 103-25(1)(b) of the ITAA 1997 to later make a choice to apply a CGT concession and amend their return to reduce or disregard the relevant capital gain. The election which you made in relation to the scrip for scrip rollover exemption was one which you were not eligible to make and because the CGT election made was invalid, the application for an extension of time in which to make an election is to be treated in the same manner as that submitted by an entity which has lodged an income tax return without an election. In exercising his discretion, the Commissioner must consider the following factors: ● there should be evidence of an acceptable explanation for the period of time 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 between the taxpayer and other people in like positions and the wider public interest; ● whether there was any mischief involved; and ● a consideration of the consequences. You have sought further time to elect to apply the small business CGT concessions. Your income tax return was originally lodged with the scrip for scrip rollover chosen. Because the election to apply scrip for scrip rollover was not a valid election it does not prevent an election now being made under the terms of Subdivision 152-D of the ITAA 1997. It was brought to your attention by your tax agent that an invalid choice had been made in relation to the application of the scrip for scrip rollover exemption. The election was in fact not available to you as you sold the shares. You have now made a request for consideration by the Commissioner to allow an extension of time to make an alternative, valid election, If additional time is allowed, there would be no prejudice to the Commissioner, nor would there be any unsettling of people or of established practices. Anyone in a similar position would be able to request a similar extension and there was no mischief involved in the request. The consequence of allowing further time is that the election may be made and the small business CGT exemptions may be applied if you are eligible. Having regard to all the circumstances, it is considered reasonable for the Commissioner to allow you further time to make a valid choice under paragraph 103-25(1)(b) of the ITAA 1997. | Detailed Reasoning - Further information to consider: We have not considered if you meet the basic conditions for the small business CGT concessions under subdivision 152-A of the ITAA 1997.