Private ruling: capital gains tax
Published: May 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner allow further 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 2011-12 financial year? | A1: Yes.

Relevant facts and circumstances: You sold properties that were used in the course of carrying on a business in the 2011-12 financial year. When it was time to prepare and lodge your income tax return for the 2011-12 financial year, your tax agent discussed your possible eligibility for the small business capital gains tax (CGT) concessions. It appears that your agent believed you were entitled to the 50% general discount, the 50% active asset reduction and the retirement exemption. You are over 55 years of age so there was no requirement to make a payment to a complying superannuation fund. You tax agent became unwell and did not return to work. The preparation of your income tax return was passed on to another agent. This agent prepared your income tax return and omitted the capital gain from the return completely with no further consideration of the small business concessions. You were made aware of this and contacted a firm to become your new tax agent. You discussed the treatment of the capital gain with your new agent and asked them to rectify the issue. The firm requested the working papers related to the capital gain from the previous agent. The initial consideration of the small business concessions was included, however detailed consideration of your eligibility was not present.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 103-25(1)(b) | Income Tax Assessment Act 1997 section 152-305

Reasons for decision: Summary: There are four CGT small business concessions available to eligible small businesses. The taxpayer, if eligible, has to choose to apply these concessions, except for the 50% active asset reduction which will automatically be applied unless the taxpayer chooses otherwise. The general rule is that a choice available under the CGT provisions once made can not 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). A taxpayer who has considered the application of the CGT concessions and chosen a particular concession has made a choice which cannot later be changed. However, a taxpayer who did not consider the CGT concessions and accordingly included a capital gain in their income tax return has not made a choice and can, if the Commissioner allows further time, later make a choice for a CGT concession to apply and amend their return to reduce or disregard the capital gain. 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: In this case, an oversight by your tax agent meant the CGT events that occurred were inadvertently omitted from your income tax returns and the relevant small business concessions were not applied. Having considered your circumstances and the factors outlined above, an extension of time is allowed for you to make the choice to apply the retirement exemption.