Edited version of private ruling

Authorisation Number: 1011591871085

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Ruling

Subject: Small business roll over

Question

1. Will the Commissioner allow further time under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for the taxpayer to choose the small business roll over in Subdivision 152-E of the ITAA 1997?

Answer: Yes

2. Will the Commissioner, pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997), extend the time limit to a later date as set out in paragraph 104-197(5) for you to acquire a replacement asset until 30 May 2011?

Answer: Yes

This ruling applies for the following period

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2007

Relevant facts

During the 2008 financial year you sold your business.

You state that 'you were not advised of the small business replacement asset rollover under Subdivision 152-E by your accountant at the time. Therefore the rollover option was not selected'. In preparing the income tax return your tax agent declared a taxable capital gain in the tax return after taking into account the 50 per cent CGT discount.

The choice was not made within the required time only because of an oversight by the taxpayer's former tax agent in the preparation of the income tax return. The taxpayer's new tax agent detected the oversight and wants to claim the small business rollover under Subdivision 152-E of the ITAA 1997.

You are now seeking an extension of time to acquire a replacement asset.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 103-25

Income Tax Assessment Act 1997 Paragraph 104-185(1)(a)

Income Tax Assessment Act 1997 Subsection 104-190(2)

Income Tax Assessment Act 1997 Subsection 104-197(5)

Income Tax Assessment Act 1997 Section 152-410

Income Tax Assessment Act 1997 Section 152-415

Reasons for decision

Question 1

The general rule is that a choice available under the 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).

A taxpayer who has considered the application of the CGT concessions and chosen a particular concession has made a choice which cannot later be changed. However, a taxpayer who did not consider the CGT concessions and accordingly included a capital gain in their income tax return has not made a choice and can, if the Commissioner allows further time, later make a choice for a CGT concession.

The choice was not made within the required time only because of an oversight by the taxpayer's former tax agent in the preparation of the income tax return. The taxpayer's new tax agent detected the oversight and wants to claim the small business rollover under Subdivision 152-E of the ITAA 1997.

In view of the taxpayer's circumstances, it would be reasonable for the Commissioner to allow an extension of time for the taxpayer to make a choice for the small business roll-over to apply to the capital gain made on the disposal of the business by the trust.

Question 2

Replacement asset period

The replacement asset period is defined by paragraph 104-185(1)(a) of the ITAA 1997 as being the time starting one year before, and ending two years after, the happening of the last CGT event in the income year for which the small business roll-over is obtained.

Extension of time to acquire a replacement asset

Under subsection 104-197(1) of the ITAA 1997 CGT event J5 happens if you chose a small business roll-over under subdivision 152-E of the ITAA 1997 and have not acquired a replacement asset by the end of the replacement asset period.

The Commissioner may pursuant to subsection 104-190(2) of the ITAA 1997, exercise his discretion for the replacement asset period to be extended as provided by subsection 104-197(5) of the ITAA 1997.

Commissioner's discretion

In determining if the discretion to allow a period longer than two years from the relevant CGT event would be exercised, the Commissioner has considered the following factors:

· whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension

· whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension

· whether there is any unsettling of people, other than the Commissioner, or of established practices

· fairness to people in like positions and the wider public interest

· whether there is any mischief involved, and

· the consequences of the decision.

You state that 'you were not advised of the small business replacement asset rollover under Subdivision 152-E by your accountant at the time. Therefore the rollover option was not selected'. In preparing the income tax return your tax agent declared a taxable capital gain in the tax return after taking into account the 50 per cent CGT discount.

These issues considered together are an acceptable explanation for an extension of time. It would seem fair and equitable to provide an extension of time in these circumstances.

Having considered the relevant factors, the Commissioner is willing to apply his discretion under subsection 104-197(5) of the ITAA 1997 to extend the time period for you to acquire a replacement asset until 30 May 2011.

The granting of an extension in the circumstances will not give rise to any prejudice towards the Commissioner.

There will not be any unsettling of any persons other than the Commissioner, nor will it unsettle any established practices as the granting of an extension of time to a taxpayer, dependent upon the facts, is itself an established practice.

The granting of an extension of time in the circumstances would not result in any unfairness to people in similar circumstances or like positions to you. The ability to apply for an extension of time is available to the wider taxpaying public.

There appears to be no mischief involved in the circumstances which have resulted in the request for an extension of time.

The consequences of granting the extension of time are that you will be eligible for the small business roll-over concession, and thus the capital gain that would have arisen will be disregarded to the extent set out in section 152-E of the ITAA 1997. The purpose of Subdivision 152-E of the ITAA 1997 is to allow small business taxpayers to use the relevant portion of the capital gain to acquire new CGT assets. This will happen if an extension of time is allowed.

Asset acquired by different entity

The basic conditions require that:

· a CGT event happens in relation to a CGT asset of yours in an income year (paragraph 152-10(1)(a) of the ITAA 1997 and

· the event must result in a capital gain (paragraph 152-10(1)(b).

One of the conditions in paragraph 152-10(1)(a) is that 'you' must acquire the replacement asset within the specified time. The replacement asset must therefore be acquired by the same taxpayer who has made the capital gain and who is seeking to choose the roll over.

In this case, the Commissioner will grant an extension to the Trust to acquire a replacement asset until 30 May 2011.

Conclusion

After considering the relevant factors provided against your circumstances, it is considered that you have provided a reasonable and acceptable explanation for the delay in acquiring a replacement asset. Allowing an extension of time would not prejudice the Commissioner, nor is it unfair to other people in similar positions.

As a result, the Commissioner is willing to apply his discretion under subsection 104-197(5) of the ITAA 1997 to extend the time period for the Trust to acquire a replacement asset.

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