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ATO Interpretative Decision

ATO ID 2002/739 (Withdrawn)

Capital Gains Tax

Capital gains tax: Making a choice and Small business roll-over
FOI status: may be released
  • This ATO ID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Does the application of the 50% goodwill exemption under former section 118-250 of the Income Tax Assessment Act 1997 (ITAA 1997) to a capital gain constitute the making of a choice and therefore prevent the taxpayer from later making a choice to have the small business roll-over apply under former section 123-10 of the ITAA 1997?

Decision

No. The application of the 50% goodwill exemption under former section 118-250 of the ITAA 1997 does not constitute the making of a choice for the purposes the CGT provisions of the ITAA 1997.

Facts

The taxpayer made a capital gain on the disposal of goodwill in late August 1999.

The tax agent included half the capital gain (after half was disregarded under the former 50 per cent goodwill exemption) in the taxpayer's tax return for the income year ended 30 June 2000. The tax agent lodged the tax return for the income year ended 30 June 2000 in June 2001. However the tax agent overlooked the fact that the taxpayer was to acquire a replacement asset.

The taxpayer struck a header agreement for the purchase of a replacement asset in April 2001. A contract to purchase the replacement asset was signed in early August 2001, less than two years after the disposal of the goodwill.

The taxpayer would satisfy the requirements set out in section 123-10 of the ITAA 1997.

Reasons for Decision

The general rule is that a choice available under the capital gains tax (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) of the ITAA 1997).

The 50 per cent goodwill exemption under former section 118-250 of the ITAA 1997 did not require a choice to be made for its application. Rather, the concession applied automatically if its conditions were satisfied and no choice was made otherwise. Accordingly the application of the goodwill exemption does not mean that a choice has been made. The taxpayer may later choose to apply the small business roll-over in former Division 123 of the ITAA 1997 if the Commissioner allows further time to make a choice under paragraph 103-25(1)(b) of the ITAA 1997.

Former section 118-255 of the ITAA 1997 states that former section 118-250 of the ITAA 1997 does not apply, and is taken never to have applied, if the entity makes a choice to obtain a roll-over on the goodwill under former Division 123 of the ITAA 1997. As a result, rather than half of the capital gain being disregarded, the full amount of the capital gain will be rolled-over (deferred) if the small business roll-over is chosen.

Note
Section 104-10 of the ITAA 1997 states that CGT event A1 happens if you dispose of a CGT asset and the time of the event is when you enter into the contract for the disposal or when the change of ownership occurs if there is no contract.
In the taxpayer's situation, because the contract of sale of the original asset was entered into in August 1999, former Subdivision 118-C of the ITAA 1997 and former Division 123 of the ITAA 1997 are the relevant provisions.

Date of decision:  3 May 2002

Year of income:  Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1997
   subsection 103-25(1)
   paragraph 103-25(1)(b)
   subsection 103-25(2)
   section 104-10
   section 118-250
   subsection 118-250(1)
   section 118-255
   section 123-10
   paragraph 123-75(1)

Related ATO Interpretative Decisions
ATO ID 2002/740

Keywords
CGT assets
CGT replacement assets
Goodwill
Small business roll-over
CGT choice
CGT event A1-disposal of a CGT asset

Business Line:  Centres of Expertise Capital Gains Tax

Date of publication:  31 July 2002

ISSN: 1445-2782

history
  Date: Version:
  3 May 2002 Original statement
You are here 12 March 2010 Archived

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