Private ruling: CGT - small business - extension of time to choose
Date of advice: 31 August 2023
Published: 9 October 2023
Ruling period: Year Ending 30 June 2021 | Year Ending 30 June 2022 | Year Ending 30 June 2023 | Year Ending 30 June 2024
Date scheme commenced: 1 July 2020

Ruling: Q1: Will the Commissioner exercise their discretion under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time for you to choose to apply any available small business capital gains tax (CGT) concessions to a capital gain that arose in the 2020-21 financial year? | A1: Yes. | Q2: Will a contribution of your share of the capital proceeds from the sale of the Property meet the requirement of subsection 292-100(2) of the ITAA 1997? | A2: No.

Relevant facts and circumstances: You sold the business premises (the Property) in the 2020-21 financial year. You owned the Property, and it was your active asset for more than 15 years. The Property was sold in connection with your retirement. You signed the contract of sale for the Property in the 2020-21 financial year, however the settlement occurred 12 months later in the 2021-22 financial year. You received the capital proceeds at the time of settlement. You lodged your 2020-21 income tax return, prior to the Property settlement occurring and did not record the CGT event for the sale of the Property on this return. You will amend your 2020-21 income tax return and report the CGT event, and if an extension of time to make a choice is provided, will disregard the capital gain arising under the 15-year exemption in section 152-105 of the ITAA 1997. You had every intention to notify the Commissioner of your choice to contribute proceeds from the CGT event into your superannuation fund as has always been your intention.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 103-25 | Income Tax Assessment Act 1997 section 104-10(3) | Income Tax Assessment Act 1997 section 152-105 | Income Tax Assessment Act 1997 subparagraph 292-90(2)(c)(iii) | Income Tax Assessment Act 1997 subsection 292-100(2)

Reasons for decision: Summary: We do not consider that you have made a choice in relation to applying the CGT small business concession to the sale of the Property. After considering your circumstances the Commissioner exercise the discretion under paragraph 103-25(1)(b) of the ITAA 1997 providing the requested extension of time for you to make a choice to apply any available CGT small business concessions to the gain arising from the sale of the Property. | Detailed Reasoning - CGT event A1: Section 104-10(3) of the ITAA 1997 provides that: The time of the event is: (a) when you enter into the contract for the disposal; or (b) if there is no contract - when the change of ownership occurs. Taxation Determination TD 94/89 Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income? (TD 94/89), provides that a taxpayer is not required to include any capital gain or loss in the appropriate year until an actual change of ownership occurs. | Detailed Reasoning - Choices: Subsection 103-25(1) of the ITAA 1997, states that a choice you make under Part 3-1 or Part 3-3 of the ITAA 1997 must be made: (a) by the day you lodge your income tax return for the income year in which the relevant CGT event happened; or (b) within a further time allowed by the Commissioner. Subsection 103-25(2) of the ITAA 1997 states that the way you (and any other entity making the choice) prepare your income tax returns is sufficient evidence of the making of the choice. ATO ID 2003/103 Capital gains tax: Choice and the small business roll-over (ATO ID 2003/103), considers when a choice is made in relation to the small business CGT concessions. It provides the general rule that a choice available under the CGT provisions, once made, cannot be changed. However, it also provides that a taxpayer who did not consider the CGT concessions has not made a choice can, if the Commissioner allows further time, later make a choice for a CGT concession and amend their return to reduce or disregard the capital gain. | Detailed Reasoning - Application to your circumstances: You lodged your 2020-21 tax return and did not include the CGT event being the Property sale. This was a reasonable approach in line with TD 94/89 as despite the time of the CGT event being the date of contract, settlement was yet to occur at the time of your lodgement. You are now required to lodge an amendment to your 2020-21 income tax return, to include the CGT event and plan to do so. Given that you did not include the CGT event being the Property sale in your 2020-21 income tax return, it is clear that did not consider the small business concessions at the time of lodgement. It follows that we do not consider that you have made a choice in relation to the concessions. After taking into consideration your relevant circumstances, including the fact that no mischief is involved, there is no unsettling of other people or established practices and the requested extension is relatively short, the Commissioner will allow an extension of time under paragraph 103-25(1)(b) of the ITAA 1997 to make a choice to apply any available CGT small business concessions to the gain arising from the sale of the Property. | Detailed Reasoning - Question 2: Will a contribution of your share of the capital proceeds from the sale of the Property meet the requirement of subsection 292-100(2) of the ITAA 1997? | Summary: You will not satisfy the requirement of subsection 292-100(2) of the ITAA 1997 as you will not make the contribution by the day you lodged your 2020-21 income tax return (being the CGT event year) and 30 days after you received the capital proceeds. | Detailed Reasoning - Detailed reasoning: Subsection 292-100(2) of the ITAA 1997, sets out that the requirement in this subsection are met if: (a) the contribution is equal to all or part of the capital proceeds from a CGT event for which you can disregard any capital gain under section 152-105 (or would be able to do so, assuming that a capital gain arose from the event); and (b) the contribution is made on or before the later of the following days: (i) the day you are required to lodge your income tax return for the income year in which the CGT event happened; (ii) 30 days after the day you receive the capital proceeds. | Detailed Reasoning - Application to your circumstances: The contribution to the superannuation fund has not yet occurred as you had planned on making the contribution by the day you were required to lodge your tax return for the income year in which the settlement occurred. You have already lodged your tax return for the year the Property sale CGT event occurred being the 2020-21 financial year. You did not make the contribution by the date you lodged this return therefore the requirement under subsection 292-100(2)(b)(i) of the ITAA 1997 has not been met. The requirement under subsection 292-100(2)(b)(ii) of the ITAA 1997, also was not met. This is because settlement occurred and you received capital proceeds, however you did not make the contribution within 30 days of receiving the proceeds.

Subject: CGT - small business - extension of time to choose: We have limited our private ruling to the questions raised in your application which is whether the Commissioner can exercise their discretion under paragraph 103-25(1)(b) of the ITAA 1997. Thus, the Commissioner has not considered whether you are in fact entitled to the small business CGT concessions.