ATO Interpretative Decision

ATO ID 2001/406 (Withdrawn)

Income Tax

• This ATO ID is a simple restatement of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Will the Commissioner allow a longer period than 12 months between the cessation of the taxi business in which the taxpayer had a half interest, and the disposal of the taxpayer's half interest in the taxi licence, as provided in subparagraph 152-35(a)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, the Commissioner will allow a longer period than 12 months between the cessation of the taxi business in which the individual had a half interest, and the disposal of the individual's half interest in the taxi licence, as provided in sub-paragraph 152-35(a)(ii) of the ITAA 1997.

Facts

The taxpayer and their spouse purchased a taxi vehicle, taxi licence and associated equipment post 20 September 1985.

The taxpayer's main source of income was from driving the taxi until ill health meant they were unable to drive the taxi full time.

The taxpayer and their spouse sold the vehicle and leased the licence and equipment to an unrelated party for two years with an option for a further two years. Because of continuing ill health the taxpayer and their spouse renewed the lease. However, as the taxpayer's health did not improve the taxpayer and their spouse have now decided to sell the taxi licence.

Reasons for Decision

A requirement of the active asset test in paragraph 152-35(a) of the ITAA 1997 is that the CGT asset was an active asset just before the earlier of the relevant CGT event, and the cessation of the business, if it ceased to be carried on in the last 12 months. The Commissioner can allow a longer period than 12 months under subparagraph 152-35(a)(ii) of the ITAA 1997.

The taxi business ceased to be carried on when the taxpayer and their spouse sold the vehicle and began to lease the taxi licence to an unrelated party. As the business ceased before the CGT event, which will occur upon the disposal of the licence, sub-paragraph 152-35(a)(ii) of the ITAA 1997 needs to be satisfied. As the period between the cessation of the business and the CGT event is longer than 12 months, the active asset test will be met only if the Commissioner allows a longer period.

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 from the cessation of business to the CGT event 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.

Having considered the relevant factors against the taxpayer's circumstances, in particular, the fact that the taxpayer believed their health would improve (which it did not) the Commissioner applied his discretion under subparagraph 152-35(a)(ii) of the ITAA 1997. It was considered that the taxpayer had no control over the delay and therefore, it was fair and equitable to allow the extension. The period allowed by the Commissioner was for more than 12 months from the cessation of the business to the disposal of the taxi licence.

Legislative References:
Income Tax Assessment Act 1997
   Section 152-35
   Subsection 152-35(a)
   Paragraph 152-35(a)(ii)

Keywords
Capital gains tax
CGT small business relief
CGT Active asset test
Taxi industry

Business Line:  CGT (CoE)

Date of publication:  29 September 2001

ISSN: 1445-2782