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Subject: Capital gains tax - 15 year exemption - Commissioner's discretion

Question

Will the Commissioner exercise his discretion under subsection 152-125(4) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you an extension of 30 days to make the final payment of the exempt amount?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You sold your business in the 2010-11 income year and the first payment was made by the purchaser on the purchase date.

Final payment will be made by the purchaser in the 2012-13 income year.

You will be unable to make the required payment to the concession stakeholders until the final payment is received by the purchasers. Therefore you will exceed the two year timeframe required by section 152-125 of the Income Tax Assessment Act 1997 (ITAA 1997).

You have requested an extension of 30 days to make the payment to allow for the funds to clear when paid by the purchaser and then deposit the funds in the concession stakeholder's accounts.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-125.

Reasons for decision

Section 152-125 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if a capital gain made by a company or trust is disregarded under the small business 15 year exemption any distributions made by the company or trust of that exempt amount to a CGT concession stakeholder are:

· not included in the assessable income of the CGT concessions stakeholder, and

· not deductible to the company or trust

· if certain conditions are satisfied.

The conditions are:

· the company or trust must make a payment within two years after the CGT event that resulted in the capital gain or, in appropriate circumstances, such further time as allowed by the Commissioner

· the payment must be made to an individual who was a CGT concessions stakeholder of the company or trust just before the CGT event, and

· the total payments made to each CGT concession stakeholder must not exceed an amount determined by multiplying the CGT concession stakeholder's control percentage by the exempt amount.

It has been recognised that the requirement to distribute the exempt amount within two years may cause problems where the capital proceeds are to be received by instalments (which is commercial practice). From 1 July 2006 subsection 152-125(4) of the ITAA 1997 allows the Commissioner to extend the two year time limit.

In determining if discretion should be exercised under subsection 152-125(4) of the ITAA 1997, the Commissioner will consider 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

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

· whether there is any mischief involved, and

· the consequences of the decision.

Application to your circumstances

You have requested an extension of time of 30 days to make the payment. You have requested the extension to ensure you have sufficient time to allow the final funds paid by the purchaser to clear and be deposited into the stakeholder's accounts.

You have provided an acceptable explanation for the period of extension requested. It does not appear that there would be any prejudice to the Commissioner in allowing the extension. There would be no unsettling of people or unfairness to people in like positions or the wider public. There does not appear to be any mischief involved. It would be fair and equitable to allow an extension of time.

The Commissioner will allow an extension of time of 30 days for the remaining capital gain to be paid to the stakeholders.

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