Private ruling: Capital Gains Tax (CGT) - Small Business Concessions - Choices
Date of advice: 16 August 2016
Published: September 2016
Ruling period: 01 July 20XX to 30 June 20XX.
Date scheme commenced: 01 July 20XX.

Ruling: Q1: Will the Commissioner allow, under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997), a taxpayer an extension of time for a certain period for a choice to be made under subsection 152-305(2) of the ITAA 1997 in respect of the capital gain made on the disposal of shares during the 20XX income tax year? | A1: Yes.

Relevant facts and circumstances: 1. The taxpayer was the owner of 100% of the issued shares in a company. 2. The taxpayer sold 50.1% of its shareholding in the company. 3. The taxpayer derived a capital gain under CGT event A1 from the sale of shares. 4. The taxpayer received tax advice in respect of the proposed transaction. Amongst other matters, this tax advice considered the availability to the taxpayer of the small business 50% reduction in Subdivision 152-C of the ITAA 1997. It did not consider the availability to the taxpayer of the small business retirement exemption in Subdivision 152-D of the ITAA 1997. 5. The taxpayer lodged its 2013 income tax return, declaring a capital gain with the following discounts/reductions applied: (a) Subdivision 115-A of the ITAA 1997 - general 50% discount. (b) Subdivision 152-C of the ITAA 1997 - small business 50% reduction. 6. The taxpayer lodged an amended income tax return which did not alter the amounts declared in respect of capital gains. 7. At the time of lodgement of both the original and amended income tax returns for the 20XX income year, the taxpayer was unaware that it was eligible to utilise the small business retirement exemption in Subdivision 152-D of the ITAA 1997 and a choice was not made. 8. The taxpayer appointed a new tax advisor. 9. The new tax advisor identified that the taxpayer was also entitled to the small business retirement exemption in Subdivision 152-D of the ITAA 1997 in respect of this transaction.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 103-25(1)(b) | Income Tax Assessment Act 1997 subsection 103-25(2) | Income Tax Assessment Act 1997 paragraph 103-25(3)(b) | Income Tax Assessment Act 1997 Subdivision 115-A | Income Tax Assessment Act 1997 Division 152

Reasons for decision: Summary: The CGT provisions are found in Part 3-1 & Part 3-3 of the ITAA 1997. The CGT provisions apply to all gains that arise as a result of a CGT event happening, subject to certain exemptions and exceptions. Where a capital gain or loss arises from a CGT event, an exemption or exception could apply to reduce or eliminate that gain or loss. Relevantly, Division 152 of the ITAA 1997 provides four concessions for small businesses which satisfy certain conditions. The small business retirement exemption in Subdivision 152-D of the ITAA 1997 is one of the concessions. Generally, a choice available under the CGT provisions, once made, cannot be changed. Normally, such a choice must be made by the time the income tax return is lodged, or within a further time allowed by the Commissioner (subsection 103-25(1) of the ITAA 1997). Under subsection 103-25(2) of the ITAA 1997, the way in which the income tax return is prepared 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. Paragraph 103-25(3)(b) of the ITAA 1997 states: Subsections 152-315(4) and (5) (relating to the small business retirement exemption) require a choice to be made in writing. Where the small business retirement concession has been considered and has not been chosen, generally a choice has been made which cannot later be changed. However, if a taxpayer did not consider the small business retirement concession and accordingly included a capital gain in their relevant income tax return, that taxpayer has not made a choice and can, if the Commissioner allows further time, subsequently make a choice and amend their income tax return to reduce or disregard the capital gain. In determining if the Commissioner should allow further time for the choice to be made, ATO publication Advanced guide to capital gains tax concessions for small business 2012-13 (NAT 3359-06.2013) provides a range of factors to be considered: • 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 • 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) • Whether there is any unsettling of people, other than the Commissioner, or of established practices • The need to ensure fairness to people in like positions and the wider public interest • Whether there is any mischief involved, and • The consequences of the decision. In this circumstance, the taxpayer made a capital gain on the disposal of shares in a company during the 20XX income tax year. The 20XX income tax return of the taxpayer disclosed a capital gain which was discounted by 50% in accordance with Subdivision 115-A of the ITAA 1997 (general 50% discount) and further reduced by 50% in accordance with Subdivision 152-C of the ITAA 1997 (small business 50% reduction). A tax advisor provided tax advice in respect of the proposed transaction which did not consider the small business retirement exemption in Subdivision 152-D of the ITAA 1997. On appointment of a new advisor, they identified that the taxpayer was also entitled to the small business retirement exemption in Subdivision 152-D of the ITAA 1997 in respect of this transaction. The Commissioner accepts that in this circumstance a choice was not made in respect of the small business retirement exemption in Subdivision 152-D of the ITAA 1997 at the time of the lodgement of both the original and amended 20XX income tax returns. Further: • The Commissioner considers the explanation provided to be acceptable regarding the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension. • There would be no prejudice to the Commissioner, unsettling of people or of established practice by allowing the extension. • There is no evidence of a lack of consideration of fairness to people in like positions or the wider public interest. • There does not appear to be any mischief involved. • The consequences of allowing further time in this case will not result in any further concerns. Therefore, the Commissioner will allow, under paragraph 103-25(1)(b) of the ITAA 1997, the taxpayer an extension of time for a certain period for a choice to be made under subsection 152-305(2) of the ITAA 1997 in respect of the capital gain made on the disposal of shares in a company during the 20XX income tax year.