Private ruling: Commissioner's discretion
Date of advice: 16 December 2015
Published: February 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow an extension of time as provided in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for you to choose to apply the small business retirement exemption to a capital gain that arose in the relevant financial year? | A1: Yes.

Relevant facts and circumstances: You acquired a property. The property was subsequently sold to a third party. Due to a number of unforeseen delays, the property settlement did not occur until a later financial year. You believed that the CGT event in relation to the property did not occur until the later financial year as that was when settlement was finalised. As such you did not provide your tax agent with any documentation in relation to the sale until you requested they prepare your income tax returns following the settlement. On receipt of all the relevant documentation your tax agent became aware that the CGT event was actually in relation to the earlier financial year and as such was outside the time allowed for you to apply the small business CGT concessions. You meet the basic conditions for the small business CGT relief and any additional requirements for the retirement exemption.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 103-25(1) | Income Tax Assessment Act 1997 subsection 103-25(2) | Income Tax Assessment Act 1997 paragraph 103-25(3)(b) | Income Tax Assessment Act 1997 subsection 152-315(4)

Reasons for decision: Summary: You may choose to disregard or defer all or part of a capital gain under the small business CGT concessions 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 (paragraph 103-25(1)(b) 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. Paragraph 103-25(3)(b) of the ITAA 1997, however, contains an exception in relation to the small business retirement exemption, as subsection 152-315(4) of the ITAA 1997 requires the choice for this exemption to be made in writing. In determining if the discretion to allow further time would be exercised, the Commissioner considers the following factors: • 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), • prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension), • unsettling of people, other than the Commissioner, or of established practices, • fairness to people in like positions and the wider public interest, • whether any mischief is involved, and • consequences of the decision In this case you were not aware that a capital gain had been made in the earlier financial year and therefore did not inform your tax agent to include it in your prior year's return. We consider this to be an acceptable explanation for the period of extension required. There would be no prejudice to the Commissioner or unsettling of people by allowing the extension. There is no mischief involved. The Commissioner considers it fair and equitable in these circumstances to exercise his discretion. An extension of time has been granted to make the choice to apply the small business CGT concessions and the retirement exemption.