Private ruling: Capital gains tax – extension of time
Date of advice: 12 September 2018
Published: October 2018
Ruling period: Income year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise discretion to allow an extension of time to apply the capital gains tax (CGT) small business concessions to CGT events which will be included in the amendment of your 2017 income tax return? | A1: Yes

Relevant facts and circumstances: You and your spouse have been running a commercial farming operation for over 40 years through a partnership (the partnership). The partnership utilises farm land which is owned by you. In 20XX you decided to sell the farm land which also includes two dwellings (the properties) to your child and their spouse to allow them to take over the farming operation. Final cattle sales will occur in 20XX, 20XX and 20XX income years as the herd reduces annually. The properties disposed of include: ● X properties which are pre capital gains tax (CGT) assets ● Y properties which are post CGT assets and which have generated a capital gain on their disposal ● Z additional lots of post CGT land. These lots were acquired at around the same time as the disposal of the above pre and post CGT properties. These properties were sold for their cost and did not generate a capital gain on disposal. You entered into a contract for the sale of the properties in early 20XX. Settlement of the sale occurred in late 20XX. The sale price on the contract of sale is $X,XXX,XXX. The sale of the properties involves a non-arm’s length transaction between related parties. You obtained a market valuation which advised the pre and post CGT properties (excluding the newly acquired lots) were worth approximately $X,XXX,XX. You deducted the insurance proceeds for the destruction of a dwelling from the valuation, to reflect the fact that the property no longer had a dwelling on it. As the market valuation of the properties did not include the newly acquired lots, you have added the cost/ sale price of the lots to your estimated market value of the land to bring the estimated arm’s length total of the sale to $X,XXX,XXX. Post CGT properties You acquired post CGT property 1 in 19XX. The property included a small dwelling and over 100 acres of farm land that was actively farmed for your entire ownership period. The dwelling located on the property was destroyed by fire in 20XX. You will apply the 15 year exemption under Subdivision 152 -B of the Income Tax Assessment Act 1997 (ITAA 1997) to the capital gain related to the sale of this property. You acquired post CGT property 2 in 19XX. This property consisted of approximately 6 hectares of farm land that was actively farmed for your entire ownership period. You will apply the 15 year exemption under section 152-100 of the ITAA 1997 to the capital gain arising from the sale of this property. You acquired post CGT property 3 in 20XX. This property consisted of less than 100 acres of farm land that was actively farmed for your entire ownership period. You will apply: ● the 50% general discount under Subdivision 115-A of the ITAA 1997, ● the 50% active asset discount under Subdivision 152-C of the ITAA 1997, and ● the small business retirement exemption under Subdivision 152-C of the ITAA 1997 to the capital gain arising from the sale of this property. If you are eligible to make a superannuation contribution in relation to the sale of the property you will choose not to apply the small business active asset discount to the gain. Post CGT Lots You acquired a further Z lots of land from the Crown in 20XX. Due to the timing of the negotiation and acquisition of the lots, you sold these lots for the same amount they were acquired for. Pre CGT asset You purchased a property prior to 20 September 1985.This property consisted of over 150 acres of farm land and a dwelling. You moved into the dwelling and established it as your main residence in 20XX and continued to reside in it until present. This property is included in the parcel of land which has been disposed of as part of the sale. You wish to make a superannuation contribution in respect to the capital gain which arises in relation to the disposal of this property. You met with your previous accountant to have your 20XX tax return completed. The accountant did not request any information in relation to the land sale despite knowledge of the event occurring. You believed that as settlement was to occur in the 20XX income year that this would be the year that the CGT event should be reported. The CGT events were not reported in your 20XX income tax return. In late early 20XX you met with a financial advisor to discuss investment of the proceeds of the sale. The advisor requested details of the sale and informed you that the CGT events should have been included in your 20XX income tax return. You intend to amend your 20XX income tax returns and include the CGT events. You seek the Commissioner’s discretion to allow an extension of time to apply the CGT concessions. You meet the basic conditions for small business capital gains tax (CGT) concessions contained in in Subdivision 152-A of the ITAA 1997. You are over 75 years old and the CGT events are occurring in relation to your retirement. Your spouse is over 55 years old and the CGT events are occurring in relation to their retirement. Your hours of work have reduced significantly since the sale. The choice to apply the retirement exemption under Subdivision 152-D of the ITAA 1997 will be made in writing in accordance with 152-315(4) of the ITAA 1997 before the end of the extension period. You will not exceed the CGT retirement contribution limit of $500,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 103-25 | Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Section 152-10 | Income Tax Assessment Act 1997 Section 152-40 | Income Tax Assessment Act 1997 Subdivision 152-B | Income Tax Assessment Act 1997 Section 152-105 | Income Tax Assessment Act 1997 Subdivision 152-C | Income Tax Assessment Act 1997 Section 152-205 | Income Tax Assessment Act 1997 Section 152-220 | Income Tax Assessment Act 1997 Subdivision 152-D | Income Tax Assessment Act 1997 Section 152-305 | Income Tax Assessment Act 1997 Section 152-320 Further issues for you to consider | You have indicated that you qualify for the small business CGT concessions. The Commissioner has not considered your eligibility for the small business CGT concessions. You should ensure that you satisfy the basic conditions and any other conditions relevant to the particular CGT small business concessions you wish to apply. More information is available in the publication Advanced guide to capital gains tax concessions for small business 2013-14 (NAT 3359), which is available on our website www.ato.gov.au .