ATO Interpretative Decision

ATO ID 2002/740 (Withdrawn)

Capital Gains Tax

• The ATO ID is withdrawn because it involves the exercise of a discretion.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Will the Commissioner allow the taxpayer further time under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to make a choice to have the small business roll-over apply under former section 123-10 of the ITAA 1997 where the 50% goodwill exemption under former section 118-250 of the ITAA 1997 has previously been applied?

Decision

Yes. The Commissioner will exercise his discretion under paragraph 103-25(1)(b) of the ITAA 1997 to allow further time for the taxpayer to make a choice for the small business roll-over under former section 123-10 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. However the tax agent overlooked the fact that the taxpayer was to acquire a replacement asset. The tax agent lodged the tax return for the income year ended 30 June 2000 in June 2001. A request for further time to make a choice that small business roll-over apply was made in July 2001.

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 previous 50 per cent goodwill exemption did not require a choice to be made for its application but applied automatically if its conditions were satisfied and no choice was made otherwise. Accordingly, if the previous 50 per cent goodwill exemption has applied to a capital gain without the taxpayer considering the other CGT concessions, the taxpayer may later choose the small business roll-over in the former Division 123 of the ITAA 1997 if further time is allowed by the Commissioner in which to make the choice.

In exercising his discretion, the Commissioner has considered the following factors:

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there should be evidence of an acceptable explanation for the period of time requested and that it would be fair and equitable in the circumstances to provide such an extension;

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account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension;

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account must be had of any unsettling of people, other than the Commissioner, or of established practices;

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there must be a consideration of fairness between the taxpayer and other people in like positions and the wider public interest;

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whether there was any mischief involved; and

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a consideration of the consequences.

The fact that the taxpayer struck a header agreement with the broker of the vendor sometime in April 2001 indicates the taxpayer intended to acquire a replacement asset. As the last CGT event during the roll-over year for which roll-over is chosen happened in late August 1999, and the replacement asset was acquired in early August 2001, the 2-year period requirement set out in former subsection 123-75(1) of the ITAA 1997 will be satisfied. Further, all the other requirements for the roll-over are also satisfied.

The choice was not made within the required time only because of an oversight by the tax agent in the preparation of the tax return. The oversight was detected almost immediately and steps taken to correct it within one month of the lodgement of the return.

After consideration of the taxpayer's circumstances the Commissioner considers it reasonable to allow the taxpayer further time to choose the small business roll-over.

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 2002/739

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