ATO Interpretative Decision
ATO ID 2002/566 (Withdrawn)
Income Tax
CGT small business concessions - retirement exemption - making eligible termination payments in instalmentsFOI status: may be released
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This ATO ID is withdrawn as the ATO view on this matter is now reflected in the publication Advanced guide to capital gains tax concessions for small business.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is the taxpayer, a private company, in making eligible termination payments under subsection 152-325(1) of the Income Tax Assessment Act 1997 ('ITAA 1997'), required to make payments to the maximum extent possible from an instalment if capital proceeds are received in instalments?
Decision
Yes. The taxpayer, in making eligible termination payments under subsection 152-325(1) of ITAA 1997, must make payments to the maximum extent possible from each instalment as it is received until the total of the eligible termination payments made equals the capital gain that is to be disregarded.
Facts
The taxpayer sold a business which was acquired after 20 September 1985. A capital gain of $200 000 arose on the sale of a CGT asset of the business. Capital proceeds from the sale of the CGT asset will be paid in five equal instalments of $100 000 over a number of years.
On the sale of the business a CGT concession stakeholder of the taxpayer ceased to be an employee of the taxpayer. The taxpayer meets the basic conditions contained in Subdivision 152-A of ITAA 1997 for small business relief. The CGT exempt amount is $200 000.
Reasons for Decision
A company can choose to disregard all or part of a capital gain under the small business retirement exemption if, amongst other things, the conditions set out in section 152-325 of ITAA 1997 are satisfied.
Subsection 152-325(1) of ITAA 1997 requires a company to make an eligible termination payment in relation to a CGT concession stakeholder each time it receives an amount of capital proceeds from a CGT event for which it has chosen the retirement exemption.
Subsection 152-325(5) of ITAA 1997 requires the amount of the eligible termination payment required to be paid under subsection 152-325(1) of ITAA 1997 to be equal to the amount of the instalment where the instalment is less than or equal to the capital gain that is to be disregarded. Eligible termination payments must be made in this manner until the total of the eligible termination payments made equals the amount of the capital gain to be disregarded.
In this situation the capital gain to be disregarded is $200 000 with each instalment of capital proceeds being $100 000. The taxpayer will be required to make two eligible termination payments of $100 000. The full amount of the first two instalments must be paid as eligible termination payments. Each eligible termination payment must be made 7 days after the taxpayer makes the choice or 7 days after it receives that instalment, whichever is the later (subsection 152-325(3) of ITAA 1997).
Date of decision: 12 February 2002Year of income: Year ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Subdivision 152-A
section 152-325
subsection 152-325(1)
subsection 152-325(3)
subsection 152-325(5)
Keywords
Capital gains tax
CGT concession stakeholder
Eligible termination payments
Sale by instalments
Small business retirement exemption
ISSN: 1445-2782
| Date: | Version: | |
| 12 February 2002 | Original statement | |
| You are here | 11 March 2005 | Archived |