Private ruling: Small business capital gains tax concessions
Published: January 2014
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you a CGT concession stakeholder of the company as defined in section 152-60 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of ITAA 1997 for you to make a choice under section 152-315 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: · the application for private ruling, and · further information provided. You held shares in the company. The company carried on a business. The company had several classes of shares on offer. Dividends may be declared on some shares at the exclusion of other. However, a valid resolution was made to give all classes of shares equal entitlements to dividends. In the 2010-11 financial year, the company signed a Share Sale and Purchase Agreement under which the shares in the company were sold to a third party. You have not claimed any of the small business capital gains tax concessions in relation to this capital gain. You satisfy the basic conditions for the small business CGT concessions. You also satisfy the further requirements of the retirement exemption. No consideration was given to the concessions when you lodged your income tax return.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 103-25(1)(b) | Income Tax Assessment Act 1997 section 152-60 | Income Tax Assessment Act 1997 section 152-315

Reasons for decision: Detailed Reasoning - Significant individual test: An individual is a significant individual of a company if they have a small business participation percentage in the company of at least 20%. This 20% can be made up of direct and indirect percentages. A company will satisfy the significant individual test if it had at least one significant individual just before the CGT event. An entity's small business participation percentage in another entity at a time is the percentage that is the sum of: · the entity's direct small business participation percentage in the other entity at that time, and · the entity's indirect small business participation percentage in the other entity at that time. An entity's direct small business participation percentage in a company is the percentage of: · voting power that the entity is entitled to exercise · any dividend payment that the entity is entitled to receive, or · any capital distribution that the entity is entitled to receive, or · if they are different, the smallest of the three. The participation percentage can be held directly or indirectly through one or more interposed entities. | Detailed Reasoning - CGT concession stakeholder: An individual is a CGT concession stakeholder of a company if they are a significant individual or the spouse of a significant individual where the spouse has a small business participation percentage in the company at that time that is greater than zero. The percentages are worked out in the same way as for the significant individual test. | Detailed Reasoning - Application to your circumstances: In this case, you held more than 20% of the voting power in the company. You were also entitled to more than 20% of the dividend and capital distributions made by the company. You have a small business participation percentage in the company of at least 20%. Therefore, you are a significant individual and a CGT concession stakeholder of the company. | Detailed Reasoning - Question 2: 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)). 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: You satisfy the basic conditions for the small business CGT concessions. You also satisfy the further requirements of the retirement exemption. You included a capital gain when you disposed of the shares. No consideration was given to the small business CGT concessions when you completed your income tax return for the 2010-11 financial year. This is 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 is allowed for you to make the choice to apply the retirement exemption.