Private ruling: Extension of time to make an election
Published: August 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the Commissioner, in accordance with his powers under subsection 70-100(7) of the Income Tax Assessment Act 1997 (ITAA 1997), grant an extension of time until 31 December 2013 for the original partnership and new partnership to make an election under subsection 70-100(4) of the ITAA 1997? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 70-100(1) | Income Tax Assessment Act 1997 Subsection 70-100(4) | Income Tax Assessment Act 1997 Subsection 70-100(6) | Income Tax Assessment Act 1997 Subsection 70-100(7)

Reasons for decision: Summary: The Commissioner, in accordance with his powers under subsection 70-100(7) of the ITAA 1997, may grant an extension of time for an election to be made under subsection 70-100(4) of the ITAA 1997. You have requested an extension in time until 31 December 2013 to make the election in relation to the trading stock of the original partnership and that was transferred to the new partnership. The items then became trading stock of the new partnership. You have stated that you meet the requirements in subsection 70-100(6) of the ITAA 1997 and are eligible to make a subsection 70-100(4) of the ITAA 1997 election. The delay in making the election happened because of the ongoing family dispute in dissolving the partnership. The transfer of the trading stock did not involve a realisation of the value of the trading stock externally from the family business. You have argued that it would be inequitable for the partners in the original partnership to be assessable on what was effectively unrealised income arising from the trading stock being transferred to the new partnership. You have also submitted that the Commissioner is not prejudiced if he grants the extension of time for making the election as the election would only result in the deferral of assessable income, not a permanent difference, and the parties were initially entitled to make the election. When considering if an extension of time should be granted, the Commissioner will treat each case on its own merits. The Commissioner must look at all the circumstances in deciding whether it would be fair and equitable to exercise the discretion. That involves balancing all relevant factors on the basis that the legislation gives the Commissioner a discretion to accept the late election in certain circumstances. There is little guidance on the factors the Commissioner should take into account when considering the extension in time to make the election in this subsection. The wording in the legislation is very simple and gives no qualifications for this extension in time to make the election. The basis of the overall section is to allow a choice of deciding on how to treat an item of trading stock where there is a continuation of a business and no actual disposal of the entirety of a particular item, particularly in the family situation (as per the example at subsection 70-100(1) of the ITAA 1997). There is a deferral of assessable income and this is for an unknown period of time in any situation, it is not dependant on when the election is made. Even when the election is made within the designated time the income from disposal at market value will not happen until the trading stock is actually disposed of. There is no prejudice to the Commissioner to allow this extension in time to make the election. Provided all the other requirements under the section for making the election are met, it will be accepted as a valid election provided it is made by 31 December 2013.

Relevant facts: The original partnership had four partners and the new partnership has three of the original partners and the Family Trust of one of the three partners. | An independent accounting firm was appointed by the four partners to provide an independent valuation of the original partnership. An offer was made to the outgoing partner on the basis of this valuation, but they took legal action disputing the valuation. | The original partnership was dissolved. | The new partnership acquired the trading stock. | There were ongoing disputes regarding the amount that the outgoing partner should be paid for their interests. | In particular month of the relevant year, written elections were drafted for the purpose of the original partnership and the new partnership making subsection 70-100(4) elections in relation to the sale of the trading stock. The due date for signing the written elections passed as the outgoing partner would not agree to sign the election, because a resolution could not be reached agreeing to his payment. | The dispute regarding the amount that the outgoing partner should be paid for their interests is ongoing.