Private ruling: Small business capital gains tax retirement exemption
Date of advice: 20 January 2016
Published: March 2016
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow further time for the taxpayer to choose to apply the small business retirement concessions to capital proceeds that relate to a capital gains tax (CGT) event that occurred in the 20XX-XX financial year but were not received until the relevant financial years? | A1: Yes.

Relevant facts and circumstances: The taxpayer owned a property which was used in a business they carried on. The taxpayer entered into a deed of option in relation to creating an easement on the property. In the 20XX-XX financial year the taxpayer signed the easement agreement and the option was exercised. The taxpayer received the payments in relation to the easement agreement over a number of years. When the taxpayer lodged their tax return for the 20XX-XX financial year, they declared the payments they had received as capital gains. The taxpayer did not claim the small business retirement exemption as their taxable income for that year was within the tax-free threshold and no tax was payable.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 103-25(1) | Income Tax Assessment Act 1997 Subsection 103-25(2)

Reasons for decision: Summary: If you are an individual, over 55 years of age, you may choose to disregard all or part of a capital gain under the small business retirement exemption if you satisfy certain conditions. The general rule is that a choice available under the CGT provisions once made cannot be changed. Generally, such a choice must be made by the time the income tax return is lodged, or within such further time as the Commissioner allows (subsection 103-25(1) of the ITAA 1997). Under subsection 103-25(2) of the ITAA 1997, the way you prepare your income tax return is sufficient evidence of the making of the choice. In determining if the Commissioner should use his discretion to allow an extension of time the following factors are considered: • your explanation for not making the choice by the time it should have been made • whether it would be fair and equitable in the circumstances to allow you more time to make a choice • if prejudice to the Commissioner of Taxation might result from additional time being allowed to you, however the absence of prejudice by itself is not enough to justify granting an extension • whether it would be fair and equitable to people in similar positions and the wider public interest, and • if any mischief is involved. The Commissioner considers it fair and equitable in these circumstances to exercise his discretion and allow an extension of time as: • the explanation for not making the choice is reasonable - there was no need to make a choice as the inclusion of the known compensation payments did not result in any tax payable • there was sufficient uncertainty as to whether future payments would be received, and their quantum, and if these payments would represent consideration for the earlier CGT event or some standalone event in the later income years • there would be no prejudice to the Commissioner and it would be fair and equitable to people in similar positions for the extension to be granted, and • no mischief was involved. An extension of time until 30 June 20XX is allowed for the taxpayer to make the choice to apply the retirement exemption to the capital gain.