ATO Interpretative Decision

ATO ID 2003/94 (Withdrawn)

Capital Gains Tax

• This ATO ID is withdrawn because the ATO is reconsidering the position stated in the ATO ID
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

If a taxpayer chose the small business roll-over in former Division 123 of the Income Tax Assessment Act 1997 (ITAA1997) for a capital gain but failed to acquire a replacement asset within the relevant 2 year period set out in former section 123-75 of the ITAA 1997, will the general interest charge (GIC) imposed under section 170AA of the Income Tax Assessment Act 1936 (ITAA 1936) applicable to the 2 year period be remitted when the earlier year's income tax return is amended?

Decision

Yes. Having regard to the particular facts of the case, the GIC imposed under section 170AA of the ITAA 1936 applicable to the 2 year period following the disposal of the original asset will be remitted in full where the taxpayer failed to acquire a replacement asset within the relevant 2 year period and consequently amended their income tax return for the year of disposal to include the capital gain.

Facts

The taxpayer sold their business in the 1998-99 income year and a capital gain arose on the disposal of goodwill.

The taxpayer chose the small business roll-over in former Division 123 of the ITAA 1997 to disregard the capital gain as indicated in their income tax returns lodged for the year ended 30 June 1999. No other CGT events happened in that year for which the roll-over was chosen.

The taxpayer failed to acquire a replacement asset within 2 years of the sale of the business and accordingly amended their income tax returns for the year ended 30 June 1999 to include the capital gain that had been disregarded. No discretion existed in the former Division 123 of the ITAA 1997 for the Commissioner to extend the period in which a replacement asset must be acquired.

The taxpayer provided a reasonable explanation for their failure to acquire a replacement asset within the required period.

Reasons for Decision

A choice is made for the small business roll-over at the time a decision is taken to disregard the capital gain. On the basis of having made a choice for the roll-over, a taxpayer is not required to include the capital gain in their income tax return notwithstanding a replacement asset has not yet been acquired.

However, if a replacement asset is not acquired within the relevant 2 year period set out in former section 123-75 of the ITAA 1997, the taxpayer must amend their income tax return for the year in which the capital gain was made to include the capital gain.

In this situation, the taxpayer became liable for the payment of the GIC under section 170AA of the ITAA 1936. However, the Commissioner has a discretion under subsection 8AAG(1) of the Taxation Administration Act 1953 (TAA 1953) to remit the GIC.

When the taxpayer chose the small business roll-over there was no requirement to include the capital gain in their return for the year the gain arose and no tax on the gain was payable at that point. Within that 2 year period the taxpayer was operating in accordance with the legislation. It was only the later non-acquisition of a replacement asset within the required period that triggered the need to amend the return.

Having regard to the merits of this case, it was appropriate to exercise the discretion in subsection 8AAG(1) of the TAA 1953 to remit the GIC in full for the 2 year period so that the GIC would apply only from the end of the relevant 2 year period.

Year of income:  Year ended 30 June 1999

Legislative References:
Income Tax Assessment Act 1997
   Section 123-75

Keywords
Capital gains tax
CGT replacement assets
Small business roll-over
CGT choice

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  15 March 2003

ISSN: 1445-2782