Private ruling: Commissioner's discretion under 152-125(4) of the Income Tax Assessment Act 1997
Date of advice: 30 September 2020
Published: November 2020
Ruling period: 20XX - 20XX
Date scheme commenced: 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 152-125(4) of the Income Tax Assessment Act 1997 to extend the time limit contained in subparagraph 152-125(1)(b)(i) of the ITAA 1997 to make payments to the CGT concession stakeholders until 20XX? | A1: Yes.

Relevant facts and circumstances: Background 1. You ran a business. 2. You have two shareholders each holding 50%, no one else has been a shareholder. 3. Both shareholders were over retirement age. 4. You sold the business and assets to a third party as a going concern in 20XX as the directors were looking to retire. 5. The business and assets were eligible for CGT. 6. You have claimed the relief to make exempt payments to your CGT concession stakeholders under section 152-125 of the of the Income Tax Assessment Act 1997 (ITAA 1997) within two years of the sale. 7. The proceeds of the sale were intended to be distributed to the directors in accordance with their stakeholder participation percentage. 8. Under subparagraph 152-125(1)(b)(i) of the ITAA 1997 the company has a two-year time period after the relevant CGT event to make one or more payments relating to the exempt amount. This two-year period ends in 20XX The Sale 9. The Sale Agreement was executed in 20XX for a total purchase price of $X,XXX,XXX.XX. This amount was payable in various instalments over a number of years. 10. You have advised there were no previous interactions with the ATO regarding the original payment plan. 11. The sale resulted in a capital gain. Prior to COVID-19 12. Due to a downturn in the industry the business operates in, a number of payments were missed by the third party to you. Impacts of COVID-19 13. The current COVID-19 pandemic has provided further difficulties for the third party to meet its repayment requirements under the agreed terms of the contract. 14. Currently, the Purchaser is tracking a X% reduction in revenue for the period compared to last year. All the Purchaser's employees are receiving JobKeeper payments. 15. As a result of the current situation, they have continued to miss payments and have now ceased all payments to you. Renegotiated Payment Plan 16. You are contemplating enforcing your legal rights under the contract for payments that are due, but you believe it is unlikely the Purchaser will be able to meet immediate demand for payment without putting itself in an acute economic position. 17. As a result, you have advised of a proposed renegotiated payment plan based on the avoidance of another COVID-19 lockdown, the resumption of the pre-COVID-19 business environment, and the recent downturn in the business' industry. 18. The renegotiated payment plan extends the time for the same number and value of payments to be received.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-10 | Income Tax Assessment Act 1997 Section 152-15 | Income Tax Assessment Act 1997 Section 152-20 | Income Tax Assessment Act 1997 Section 152-35 | Income Tax Assessment Act 1997 Section 152-40 | Income Tax Assessment Act 1997 Section 152-110 | Income Tax Assessment Act 1997 Section 152-125 | Income Tax Assessment Act 1997 Subparagraph 152-125(1)(b)(i) | Income Tax Assessment Act 1997 Subsection 152-125(4)

Reasons for decision: Summary: The Commissioner may exercise his discretion under subsection 152-125(4) of the ITAA 1997 and allow further time to make payments to the concessional stakeholders, taking into account the individual circumstances and commercial practices of each case. The range of factors that the Commissioner will consider in allowing an extension of time includes: a) whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension; b) whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension); c) whether there is any unsettling of people, other than the Commissioner, or of established practices; d) the need to ensure fairness to people in like positions and the wider public interest; e) whether there is any mischief involved; and f) the consequences of the decision. The Commissioner accepts that the combination of the downturn in the business' industry combined with the current COVID-19 situation has made it impossible to make payments as required under the original payment terms within the two-year time frame allowed for under subsection 152-125(1) of the ITAA 1997 as the Purchaser has ceased all payments to you. You have negotiated a new payment schedule with the Purchaser which will enable them to meet their payment obligations to you under the contract without compromising their long-term viability in the impacted industry, and subsequently the completion of the sale contract. Maintaining the viability of the sale contract would work to prevent any legal action that may unsettle the parties involved. Having considered the relevant circumstances, the Commissioner is satisfied there are circumstances that warrant the exercise of the Commissioner's discretion. Additionally, the Commissioner is satisfied there is no prejudice against him, no unsettling of other taxpayers, no issues of fairness and no concerns of mischief involved. The Commissioner will exercise his discretion and extend the two-year time limit under subsection 152-125(4) of the ITAA 1997 to 20XX in relation to the payments from the contract that were expected to be received within the original two-year period. An extension until 20XX would place you in the same position as you were in the original contract. It will not include, under the renegotiated payment plan, the instalments that fell due after the original two-year exemption period (regardless of when they are paid). These instalments will remain outside the extension period. This ensures fairness across the tax system by not providing an extra benefit to you that would not have been received in the ordinary course of the original contract. As such the capital gain from the sale is $XXX,XXX,XX. The exempt amount eligible to be distributed to your stakeholders under the extended exemption period is $XXX,XX,XX. Conclusion Having considered the relevant circumstances, the Commissioner is satisfied there is an acceptable explanation for the need for a discretion. Additionally, the Commissioner is satisfied there is no prejudice against him, no unsettling of other taxpayers, no issues of fairness and no concerns of mischief involved. As such, the Commissioner will exercise his discretion and extend the two-year time limit under subsection 152-125(4) of the ITAA 1997 up to 20XX to allow you to make exempt payments to your concession stakeholders.