Private ruling: Small business capital gains tax concessions
Date of advice: 20 January 2016
Published: March 2016
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow further time for you to choose to apply the small business rollover concessions to capital proceeds that relate to a capital gains tax (CGT) event that occurred in the 20XX-XX financial year but were not received until the relevant financial years? | A1: Yes. | Q2: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period to 30 June 2016? | A2: Yes.

Relevant facts and circumstances: You own a property which is used in a business you carry on. You entered into a deed of option with in relation to creating an easement on your property. In the 20XX-XX financial year you signed the easement agreement and the option was exercised. You have received payments in relation to the easement agreement in the 20XX-XX and subsequent financial years. When you lodged your tax return for the 20XX-XX financial year, you declared the payments you had received as capital gains. You did not claim the small business rollover exemption as your taxable income for that year was within the tax-free threshold and no tax was payable. You have since received the full and final compensation payment which will result in you having to pay tax on your taxable income when it is included in your amended tax return for the 20XX-XX financial year. You have been seeking a replacement asset and will acquire one by 30 June 2016.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 103-25(1) | Income Tax Assessment Act 1997 Subsection 103-25(2) | Income Tax Assessment Act 1997 Subsection 104-190(2) | Income Tax Assessment Act 1997 Section 152-410

Reasons for decision: Detailed Reasoning - Extension to apply the small business rollover concession: You may choose to disregard all or part of a capital gain under the small business rollover exemption if you satisfy certain conditions. The general rule is that a choice available under the CGT provisions once made cannot 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) of the ITAA 1997). Under subsection 103-25(2) of the ITAA 1997, the way you prepare your income tax return is sufficient evidence of the making of the choice. In determining if the Commissioner should use his discretion to allow an extension of time the following factors are considered: • your explanation for not making the choice by the time it should have been made • whether it would be fair and equitable in the circumstances to allow you more time to make a choice • if prejudice to the Commissioner of Taxation might result from additional time being allowed to you, however the absence of prejudice by itself is not enough to justify granting an extension • whether it would be fair and equitable to people in similar positions and the wider public interest, and • if any mischief is involved. The Commissioner considers it fair and equitable in your circumstances to exercise his discretion and allow an extension of time as: • your explanation for not making the choice is reasonable - there was no need to make a choice as the inclusion of the known compensation payments did not result in any tax payable • there was sufficient uncertainty as to whether future payments would be received, and their quantum, and if these payments would represent consideration for the earlier CGT event or some standalone event in the later income years • there would be no prejudice to the Commissioner and it would be fair and equitable to people in similar positions for the extension to be granted, and • no mischief was involved. An extension of time until 30 June 2016 is allowed for you to make the choice to apply the rollover concessions. | Detailed Reasoning - Extension to obtain a replacement asset: In order to apply the small business rollover, a replacement asset must be acquired within two years after the relevant CGT event. However, the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the ITAA 1997). The relevant factors in determining whether to extend the replacement asset period are: • your explanation for the period of extension requested and that it would be fair and equitable to provide such an extension • if prejudice to the Commissioner of Taxation might result from additional time being allowed to you, however the absence of prejudice by itself is not enough to justify granting an extension • if there is any unsettling of other people, other than the Commissioner, or of established practices • whether it would be fair and equitable to people in similar positions and the wider public interest, and • if any mischief is involved. After a consideration of the factors, the Commissioner considers it fair and equitable in these circumstances to exercise his discretion to extend the replacement asset period to 30 June 2016.