Private ruling: Non concessional contributions
Published: July 2014

Ruling: Q1: Will the Commissioner, under subsection 388-55(1) of Schedule 1 to the Taxation Administration Act 1953 defer the time for lodging a 'capital gains tax cap election' form (for a contribution) under subsection 292-100(9) of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: Your client and their spouse acquired a working property several years ago and used the premises for business purposes over several decades. The property was sold during the 2007-08 income year (date of contract) and settled during the 2007-08 income year. As a result of the sale of the property, a non-concessional contribution (Contribution 1) was made by your client to a superannuation scheme (Fund 1) during the 2007-08 income year. At the time your client did not make a choice under subsection 292-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to apply section 292-100 to all or part of the non-concessional contribution. During the 2009-10 income year a non-concessional contribution (contribution 2) was made by your client to another superannuation fund (Fund 2). Your client received an Excess Contributions Tax (ECT) assessment during the 2012-13 income year for the year ended 30 June 2010. It stated that your client had an excess non-concessional contributions tax. During the 2013-14 income year your client wrote to the Australian Taxation Office (ATO) objecting against the ECT assessment and requesting that the contribution made to Fund 1 during the 2007-08 income year be treated as a capital gains tax (CGT) cap amount and not as a non-concessional contribution. During the 2013-14 income year your client received a letter from the ATO advising that the objection was invalid as your client had not objected to a decision made by the Commissioner. Your client was advised that if your client still wanted the ATO to consider their issue your client can request a ruling asking that their choice under subsection 292-100(1) of the ITAA 1997 (CGT Cap Election) in respect of the contribution 1 be accepted outside the required time limits. You stated that your client satisfies the conditions required under the ITAA 1997 to make the CGT Cap Election in respect of the Contribution 1 made during the 2007-08 income year. During the 2013-14 income year, your client lodged a private ruling requesting that the Commissioner accept the CGT Cap Election outside of the required time limits as required under paragraph 292-100(9)(b).

Relevant legislative provisions: Income Tax Assessment Act 1997 Paragraph 103-25(3)(b) | Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Section 152-300 | Income Tax Assessment Act 1997 Section 152-305 | Income Tax Assessment Act 1997 Subsection 152-310(1) | Income Tax Assessment Act 1997 Section 292-90 | Income Tax Assessment Act 1997 Subsection 292-90(1) | Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(iii) | Income Tax Assessment Act 1997 Subsection 152-320(1) | Income Tax Assessment Act 1997 Subsection 292-100(1) | Income Tax Assessment Act 1997 Subsection 292-100(7) | Income Tax Assessment Act 1997 Subsection 292-100(9) | Taxation Administration Act 1953 Schedule 1, Section 388-50(1) | Taxation Administration Act 1953 Schedule 1, Subsection 388-55(1).

Reasons for decision: Summary: The Commissioner is of the view that it would not be appropriate for him to exercise his discretion to defer the time for lodging the CGT Cap Election form. This view has been reached after considering the principles established by the relevant case law and the guidelines provided in the ATO's relevant law administration practice statement in conjunction with the facts of this case. | Detailed Reasoning - Detailed reasoning: Division 152 of the ITAA 1997 provides for small business concessions in relation to capital gains. Subdivision 152D specifically deals with the small business retirement exemption. Section 152-300 states that an individual can choose to disregard a capital gain for a CGT event happening to a CGT asset of their small business if the capital proceeds from the event are used in connection with their retirement. Subsection 152-305(1) of the ITAA 1997 sets out the requirements for claiming the CGT small business retirement exemption. The basic conditions in Subdivision 152-A of the ITAA 1997 must also be satisfied to disregard the capital gain. Subsection 152-310(1) provides that when the choice is made under section 152-305, the elected part of the capital gain from the CGT asset is disregarded. Subsection 152-320(1) of the ITAA 1997 provides that an individual's CGT retirement exemption limit is $500,000 (reduced by the CGT exempt amounts of CGT assets specified in choices previously). Paragraph 103-25(3)(b) requires the choice in relation to the small business retirement exemption to be made in writing. Section 292-100 of the ITAA 1997 sets out further requirements for a contribution to satisfy the CGT small business concessions and not be considered a 'non-concessional contribution' under subparagraph 292-90(2)(c)(iii). Under that section, a contribution equal to all or part of the capital gain from a CGT event that an individual disregarded under subsection 152-305(1) must be made to a complying superannuation fund on or before the later of: • the day they are required to lodge their income tax return; or • 30 days after the day they receive the capital proceeds from the CGT event. In accordance with subsection 292-100(9) of the ITAA 1997, any choice must be made in the approved form and given to the superannuation provider in relation to the complying superannuation fund on or before the time when the contribution is made. Section 292-100 of the ITAA 1997 does not provide the Commissioner with a discretion to allow a choice under subsection 292-100(9) of the ITAA 1997 to be made at a later time. The legislation clearly provides that the small business retirement exemption is a choice that must be actively elected by the taxpayer in accordance with the specific requirements. The Explanatory Memorandum (EM) to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 supports this assertion with paragraph 1.102 stating: A contribution will only count towards the CGT cap if the person notifies their superannuation provider before, or when the contribution is made . … It also provides the person with the choice as to whether all or part of the contribution uses their non-concessional contributions cap or their CGT cap. [bold emphasis added] This paragraph also highlights the importance of making the appropriate election because the taxpayer concerned can choose how much of a contribution to apply the concession to. Your client has clearly not met the requirements under section 292-100 of the ITAA 1997 to exempt the capital gain from the non-concessional contributions cap. The choice was not made in writing, in the approved form and on or before the time that the contribution was made to the Fund as set out in subsection 292-100(9). There is no discretion provided to the Commissioner in the ITAA 1997 to defer the time of making this choice. Subsection 388-55(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides the Commissioner with the discretionary power to defer the time within which an approved form is required to be given to the Commissioner or another entity. The CGT Cap Election form (NAT 71161), which is required to be lodged with a complying superannuation fund at or before the contribution is made under subsection 292-100(9) of the ITAA 1997, is an approved form as defined in section 388-50 of Schedule 1 to the TAA. Therefore, consideration should be given to the possible application of subsection 388-55(1) of Schedule 1 to the TAA in this situation. In MW McIntosh Pty Ltd & Anor v Federal Commissioner of Taxation 1 ( McIntosh ), the Full Federal Court held that the application of subsection 388-55(1) of Schedule 1 to the TAA is generally confined to a provision that required the giving of an approved form in fulfilment of an obligation. The application did not extend to a permissive provision, at least where the failure or omission to act within the time limit did not adversely impact on existing rights and privileges. Justice Edmonds went on to clarify that the adverse impacts had to be to 'existing rights and privileges' and not merely where the failure to act within the time would result in the loss of an opportunity to gain a right or privilege. The choice to apply the small business retirement exemption is optional and will only occur when the taxpayer elects, in the approved form, for it to be applied. Failure to apply for the CGT concession will not adversely impact on any existing right or privilege and will result only in the loss of an opportunity to gain a privilege. Therefore, following the principles of McIntosh , subsection 388-55(1) of Schedule 1 to the TAA has no application in this case. Practice Statement Law Administration PS LA 2011/15 titled ' Lodgment obligations, due dates and deferrals ' provides guidance to tax officers on when it is appropriate for the Commissioner to defer lodgment obligations. Paragraph 141 states that the existence of this discretion does not mean that the entity has an entitlement to it being exercised. Where possible, a lodgement deferral request should be made before the lodgment due date (paragraph 145). The Commissioner will generally grant a deferral where it is fair and reasonable to do so having taken into account all of the material facts. Paragraph 150 of PS LA 2011/15 goes on to provide that the Commissioner generally considers it fair and reasonable where the inability to lodge by the due date is reasonably attributed to exceptional or unforseen circumstances such as natural disasters, serious illness or death, impeded access to records or advanced age or youth of the individual. PS LA 2011/15 makes no reference to ignorance of the legal requirements or lack of appropriate advice as legitimate reasons to defer lodgment obligations. The application of the discretion several years after the required date of lodgment is also not consistent with the guidelines provided in PS LA 2011/15. In accordance with PS LA 2011/15, the discretionary power to defer the lodgment of an approved form under subsection 388-55(1) of Schedule 1 to the TAA should not be applied in this case. In ATO Interpretative Decision ATO ID 2005/64 titled ' Income Tax Commissioner's Discretion: deferring due date for issuing distribution statements ', the Commissioner did not exercise his discretion under subsection 388-55(1) of Schedule 1 to the TAA. It was determined that the provision in question refers to an approved form that 'is required to be given' rather than 'was required to have been be given' and that the Commissioner cannot exercise his discretion under subsection 388-55(1) of Schedule 1 to the TAA to retrospectively defer the time for lodgment. This decision further supports our assertion in this case. In conclusion, after considering the facts of this case, the Commissioner does not find it appropriate to exercise his discretion under subsection 388-55(1) of Schedule 1 to the TAA to defer the time for lodging the CGT Cap Election form under subsection 292-100(9) of the ITAA 1997. 1 [2009] FCAFC 88; (2009) 178 FCR 100; (2009) 2009 ATC 20-119; [2009] ALMD 6214; (2009) 76 ATR 231

This advice applies for the following period: Income year ended 30 June 2008