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Ruling

Subject: CGT 15-year exemption

Question

Will the Commissioner, pursuant to section 152-125(4) of the Income Tax Assessment Act 1997 (ITAA 1997), extend the time limit under paragraph 152-125(1)(b) of the ITAA 1997 for payment of the exempt amount to CGT concession stakeholders from two years to five years?

Advice/Answers

Yes

This ruling applies for the following period

01 July 2011 to 30 June 2018

The scheme commenced on

12 January 2012

Relevant facts

You are a company.

You have two shareholders who each own 50% of the shares in the company.

These shareholders are the CGT concession stakeholders.

You satisfy the basic eligibility criteria for the small business 15-year concession.

You are selling the business goodwill.

The CGT concession stakeholders are both over 55 years of age and the sale is in relation to their retirement.

The sale is to be vendor financed.

You have entered into this vendor finance agreement to enable the sale to proceed.

You have provided a draft excerpt of the vendor sale agreement which shows the balance of the purchase price to be paid by monthly instalments with the final instalment being due more than two years after the sale.

You will disburse the sale funds to the CGT concession stakeholders as they are received.

You request an extension of time from two years to 5 years to disburse all the funds from the sale, as they are received under the vendor finance agreement, to the CGT concessions stakeholders.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-110

Income Tax Assessment Act 1997 section 152-125

Income Tax Assessment Act 1997 section 152-125(1)(b)

Income Tax Assessment Act 1997 section 152-125(4)

Reasons for decision

Summary

Yes, the Commissioner will extend the time limit for payment of the exempt amount to CGT concession stakeholders from two years to five years?

Detailed reasoning

A capital gain or capital loss is made when the CGT event which gives rise to the capital gain or capital loss happens. Where an asset is disposed of under a contract which provides for vendor finance a CGT event A1 occurs.

The whole of a capital gain that is made in these circumstances is brought to account in the income year in which the relevant CGT event happens. Further, any interest received under the finance agreement is treated as assessable income in the year in which the interest income is received.

Section 152-110 contains the 15-year exemption rule for companies or trusts conducting a small business (the entity). It applies where:

· the basic conditions in Subdivision 152-A are satisfied for the gain;

· the entity continuously owned the CGT asset for the 15-year period ending just before the CGT event

· the entity had a significant individual at all times during the whole period the entity owned the CGT asset; and

· the significant individual just before the CGT event was either: (i) 55 or over and the event happened in connection with the individuals retirement; or (ii) permanently incapacitated.

Where all of these conditions are satisfied, the entity can disregard any capital gain arising from the CGT event.

You have advised that you meet all the basic conditions for the Small business concession and the 15-year exemption.

Pursuant to section 152-125 of the ITAA 1997, if a capital gain made by a company is disregarded under the small business 15-year exemption, distributions made by the company of that exempt amount to a CGT concession stakeholder is not included in the assessable income of the CGT concession stakeholder if the company makes the payment within two years after the CGT event.

The Commissioner may exercise his discretion under section 152-125(4) and allow further time to make payments to the concessional stakeholder. Factors to be considered include:

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

· account must be had to any prejudice to the Commissioner which may result from the additional time being allowed;

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

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

· whether there was any mischief involved; and

· consideration of the consequences.

Having considered the relevant factors against the circumstances of the company, the Commissioner is satisfied that:

There is an acceptable explanation for the period of the extension in that the company could only be sold under a vendor finance arrangement because of difficulties in obtaining finance to purchase goodwill.

Whilst the length of the extension may be greater than generally envisaged by the provision, it is considered that based on the facts specific to this decision, allowing the extension sought will not prejudice the Commissioner.

Other persons are within their rights to have a request for extension of time considered based on the individual facts of their case. As such there would appear to be no unsettling of other people or established practices.

There is no evidence of a lack of consideration of fairness between you and other people in like positions and the wider public interest.

There does not appear to be any mischief involved based on the facts of the case.

The unintended consequence of not granting the extension is to deny exemption to company CGT concession stakeholders where the delay provides you with no apparent benefit.

Based on the above, in the circumstances of this case, pursuant to subsection 152-125(4) of ITAA 1997 the Commissioner will extend the time limit under paragraph 152-125(1)(b) of ITAA 1997 from 2 years to 5 years as requested.

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