Private ruling: CGT - small business concessions - retirement exemption
Date of advice: 16 December 2020
Published: March 2021
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can the Trustee for Xxxxx Trust have an extension of time to make the choice to apply the retirement exemption under the small business CGT concessions via lodging amended tax returns for the 20XX and 20XX years? | A1: Yes | Q2: Based on the above extension of time being granted, can, the concession stakeholders of the trust receiving the capital gain, and for which the retirement exemption has been applied, contribute the exempt amount into his or her nominated superannuation fund under their CGT cap and not count towards their non-concessional cap, based on the fact that it would be contributed when the decision is made (i.e. when the amended tax return is lodged)? | A2: No

Relevant facts and circumstances: You have told us your clients are new to your firm. You have told us their previous tax agent did not make the clients aware they had a choice to apply the small business capital gains tax retirement exemption. Your clients are concessional stakeholders of the family trust and both were over 55 years of age at the commencement of the scheme. Due to the clients not being aware they could apply the small business retirement exemption, they lodged their 20XX and 20XX income tax returns only applying the general 50% CGT discount and the 50% active asset reduction.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 103-25(1)(b) | Income Tax Assessment Act 1997 section 118-110(1) | Income Tax Assessment Act 1997 subsection 152-305(2) | Income Tax Assessment Act 1997 section 152-315 | Income Tax Assessment Act 1997 section 152-320 | Income Tax Assessment Act 1997 section 152-325 | Income Tax Assessment Act 1997 subsection 292-90(2)(c) | Income Tax Assessment Act 1997 subsection 292-100(8)

Reasons for decision: Detailed Reasoning - Extension of time to apply CGT retirement exemption: You have told us that your clients were unaware of the choice available to them to apply the CGT retirement exemption. As a result, their 20XX and 20XX income tax returns were lodged only applying the 50% CGT discount as the shares were held for greater than 12 months, and the small business 50% active asset reduction. There would be no prejudice to the ATO by allowing the extension. There is no mischief involved. The Commissioner considers it fair and equitable in these circumstances for an extension to be allowed. The Commissioner has granted until XXX 20XX to make a valid choice to apply the small business CGT concessions. The choice needs to be made in writing specifying the percentage of each CGT asset's CGT exempt amount that is attributable to each stakeholder in accordance with paragraph 152-315(5) of the Income Tax Assessment Act 1997 (ITAA 1997), and once made is binding (it cannot be changed). Section 152-320 of the ITAA 1997 limits the amount of the CGT retirement exemption for an individual to $500,000 reduced by the CGT exempt amount of CGT assets specified in choices previously made. | Detailed Reasoning - CGT Cap: Section 152-325 of the ITAA 1997 requires payment to be made to at least one of its CGT concession stakeholders by the later of 7 days after the trust making the choice or after receiving the capital proceeds. Paragraph 152-325(7) of the ITAA 1997 states that if a CGT concession stakeholder is under 55 years of age just before the payment is made, the trust must make payment to the CGT concession stakeholders by contributing it for the stakeholders to a complying superannuation fund in respect of the stakeholder. As both your CGT concession stakeholders are over 55 years of age, there is no requirement to make the payment to a complying superannuation fund. However, they can contribute if they want to. Under subparagraph 292-90(2)(c)(iii) of the ITAA 1997, a contribution is excluded from being a non-concessional contribution if the contribution is covered under section of 292-100 (certain CGT-related payments), to the extent that it does not exceed the CGT cap amount when it is made. A contribution is covered under section of 292-100 if, among other things, the requirement in subsection 292-100(8) is met. The requirement in subsection 292-100(8) is met if: (a) just before a CGT event, you were a CGT concession stakeholder of an entity that could, under subsection 152-305(2) (small business retirement exemption), disregard all or part of a capital gain arising from the CGT event; and (b) the entity makes a payment to you that satisfies the conditions in section 152-325; and (c) the entity makes a payment to you that satisfies the conditions in section 152-325; and (d) the contribution is made within 30 days after the payment mentioned in paragraph (b). As your concessional stakeholders received the payments in the 20XX-XX and 20XX-XX income years, the condition of making the contribution within 30 days after the payment under paragraph 292-100(8)(d) will not be satisfied.