Private ruling: Small business CGT concessions - retirement exemption - extension of time to choose
Published: January 2012
Ruling period: 1 July 2010 to 30 June 2011. | 1 July 2011 to 30 June 2012.
Date scheme commenced: 1 July 2010.

Ruling: Q1: Does the inclusion of a capital gain in your return for the 2010-11 financial year without any consideration of the small business capital gains tax (CGT) concessions in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) constitute the making of a choice? | A1:  | Q2: Has the Commissioner exercised his discretion under paragraph 103-25(1)(b) of the ITAA 1997 to extend the time limit to make a choice for the small business retirement exemption under section 152-305 of the ITAA 1997 to apply to your capital gain? | A2: 

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You were a sole trader operating a business and you sold the premises from which the business was operated in the 2010-11 financial year. You had lodged your own returns previously and for the 2010-11 financial year you sought the help of a family friend. You did not pay the family friend for his assistance. The full amount of the capital gain was included at both label 18H and 18A; that is, the capital gain was not reduced by the 50% discount nor were any small business CGT concessions applied. You meet all of the basic conditions for the small business CGT concessions. When you received your assessment notice for the 2010-11 financial year you contacted a tax agent for an explanation. Your tax agent has advised that you would be entitled to the 50% general CGT discount and as you meet all of the basic conditions for the small business CGT concessions you would also be entitled to the small business 50% reduction under section 152-205 of the ITAA 1997. You also became aware of the retirement exemption. As you were not aware of the concessions at the time of lodging your return for the 2010-11 financial year you are requesting a ruling on whether a choice has been made. As you are less than 55 years old you will have to pay the funds into a complying superannuation fund to obtain the retirement exemption.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-D | Income Tax Assessment Act 1997 Section 152-305 | Income Tax Assessment Act 1997 Paragraph 103-25(1)(b) | Income Tax Assessment Act 1997 Subsection 103-25(1)

Reasons for decision: Detailed Reasoning - Small business CGT concessions: The concessions reduce the capital gain made on the sale of business assets that you include in your assessable income. You must firstly satisfy the basic conditions that apply to all the CGT concessions for small business. You must then satisfy any additional conditions that apply specifically to the individual concessions. | Detailed Reasoning - Retirement exemption: Subdivision 152-D of the ITAA 1997 deals with the small business retirement exemption. To qualify for the small business retirement exemption you must satisfy the basic conditions and then the specific conditions that apply. If you are a sole trader or a partner in a partnership, you can use the small business retirement exemption to exempt all or part of a capital gain if: § the amount you are choosing to be exempt does not exceed your remaining CGT retirement exemption limit. An individual's lifetime CGT retirement exemption limit is $500,000. The amount you choose to exempt is called your exempt amount, and § you contribute the exempt amount into a complying superannuation fund if you were aged under 55 years just before you chose to use the retirement exemption. | Detailed Reasoning - Choices: Subsection 103-25(1) of the ITAA 1997 provides that a choice in regard to the CGT small business concessions must be made: § by the day you lodge your income tax return for the income year in which the relevant CGT event happened, or § within further time allowed by the Commissioner. Paragraph 103-25(3)(b) of the ITAA 1997 requires a choice to apply the small business retirement exemption in writing. ATO ID 2003/102 states that the general rule is once a choice is made it cannot 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 and amend their return to reduce or disregard the capital gain. | Detailed Reasoning - The Commissioners discretion: ATO ID 2003/102 provides that the Commissioner will consider the following factors when determining whether or not to exercise his discretion: § evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) § prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) § unsettling of people, other than the Commissioner, or of established practices § fairness to people in like positions and the wide public interest § whether any mischief is involved, and § the consequences of the decision. | Detailed Reasoning - Application to your circumstances: You satisfy the basic conditions for the small business concessions. You were under 55 years at the time of the CGT event and you now know of the requirements to roll-over the amount into a complying superannuation fund. You were not aware of any concessions that would apply to a capital gain. You previously prepared your own returns and the friend that helped you on this occasion was also not aware of any concessions. As soon as you received your notice of assessment you sought the advice of a tax agent. The tax agent has informed you of reductions that you may be entitled to and you are seeking this private ruling for certainty. 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. Disallowing the extension would mean that the retirement exemption could not be applied. 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.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'. | Reasons for decision: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.