Private ruling: CGT - small business concessions - extension of time to make choice
Published: May 2015
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of the ITAA 1997 for you to choose to apply the small business retirement exemption to a capital gain that arose in the 2012-13 financial year? | A1: Yes, an extension will be granted to 30 June 2015. | Q2: Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of the ITAA 1997 for you to choose to apply the small business 15 year exemption to a capital gain that arose in the 2012-13 financial year? | A2: Yes, an extension will be granted to 30 June 2015.

Relevant facts and circumstances: The deceased died in July 20XX. In June 20XX, the deceased met with their solicitor to sign transfer documents to transfer three parcels of land to their relatives utilising the intergenerational transfer stamp duty exemptions. In April/May 20XX, the deceased engaged a new accountant to assist with their estate planning matters. The deceased's 20XX-XX tax returns were lodged by his existing tax agent, omitting the capital gain from the CGT events resulting from the transfer of the properties in June 20XX. After the lodgement of the 20XX-XX tax return, the Executor for the deceased appointed the new accountant to prepare final tax returns and any further work necessary on behalf of the deceased. Upon review the 20XX-XX return, it was discovered that the capital gain resulting from the CGT events in June 20XX was omitted from the return. A written election by the deceased to utilise the small business CGT concessions for the 20XX-XX financial year has not been located. During the estate planning process, the new accountant determined that the deceased was eligible for the small business CGT concessions. It was the deceased's intention to utilise the retirement exemption concession for two of the properties and the 15 year exemption for the third property.

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 (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. 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 Commissioner should use his discretion to allow an extension of time the following will be considered: • there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension; • account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension; • account must be had of any unsettling of people, other than the Commissioner, or of established practices; • there must be a consideration of fairness to people in like positions and the wider public interest; • whether there is any mischief involved; and • a consideration of the consequences. | Detailed Reasoning - Application to your circumstances: The deceased had commenced the estate planning process with a new accountant prior to his death and it was the deceased's intention to utilise the retirement exemption concession for two of the properties and the 15 year exemption for the third property. An oversight or misunderstanding by the deceased's existing tax agent resulted in the capital gain from the transfer of the 3 properties not being included in the deceased's 20XX-XX tax return. As the deceased died prior to the 20XX-XX tax return being lodged, there has been no consideration of the relevant CGT concessions and effectively a choice has not been made. 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. A specific date for the extension period to be granted has not been requested. We consider an extension of time to make the choice to apply the retirement exemption and the 15 year exemption to 30 June 2015 to be sufficient.