Edited version of private ruling

Authorisation Number: 1011660964691

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Ruling

Subject: Capital gains tax (CGT) - small business concessions - extension of time to choose retirement exemption

1. If you have lodged an income tax return for a year in which you made a capital gain and at the time did not make a choice, can you later choose the small business retirement exemption under Subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes.

2. Will the Commissioner exercise his discretion under paragraph 103-25(1)(b) of the ITAA 1997 to extend the time limit to make a choice for the small business retirement exemption to apply to your capital gain?

Yes. The Commissioner will extend the time limit until date specified to you.

This ruling applies for the following periods:

1 July 2008 to 30 June 2009.

1 July 2009 to 30 June 2010.

1 July 2010 to 30 June 2011.

The scheme commences on:

1 July 2008.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were a sole trader. You sold the business and wound up all of your creditors and debtors by the end of the 2008-09 income year.

When your accountant lodged your income tax return for the 2008-09 income year he applied the general CGT discount and the small business concession discount but did not mention the small business retirement exemption. You included an amount as the net capital gain in your return for the 2008-09 income year.

You only became aware of the retirement exemption when a friend helped you lodge your return for the 2009-10 income year.

You have been made aware that as you are less than 55 years old you will have to pay the funds into a complying superannuation fund. You have a superannuation fund that you can pay funds into immediately if you are granted the concession.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-D

Income Tax Assessment Act 1997 Paragraph 103-25(1)(b)

Income Tax Assessment Act 1997 Subsection 103-25(1)

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Small business concessions

The concessions reduce the capital gain on business assets that you must include in your assessable income.

You must first satisfy the basic conditions that apply to all the CGT concessions for small business. You must then satisfy any additional conditions that apply specifically to the individual concessions.

Retirement exemption

Subdivision 152-D of the ITAA 1997 deals with the small business retirement exemption. To qualify for the small business retirement exemption you must satisfy the basic conditions and then the specific conditions that apply.

If you are a sole trader or a partner in a partnership, you can use the small business retirement exemption to exempt all or part of a capital gain if:

· the amount you are choosing to be exempt does not exceed your remaining CGT retirement exemption limit. An individual's lifetime CGT retirement exemption limit is $500,000. The amount you choose to exempt is called your exempt amount, and

· you contribute the exempt amount into a complying superannuation fund if you were aged under 55 years just before you chose to use the retirement exemption.

Choices

Subsection 103-25(1) of the ITAA 1997 provides that a choice in regard to the CGT small business concessions must be made:

· by the day you lodge your income tax return for the income year in which the relevant CGT event happened, or

· within further time allowed by the Commissioner.

Paragraph 103-25(3)(b) of the ITAA 1997 requires a choice to apply the small business retirement exemption in writing.

The general rule is once a choice is made it cannot 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 and amend their return to reduce or disregard the capital gain.

The Commissioners discretion

The Commissioner will consider the following factors when determining whether or not to exercise his discretion:

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

· prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)

· unsettling of people, other than the Commissioner, or of established practices

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

· whether any mischief is involved, and

· the consequences of the decision.

Application to your circumstances

You have advised that you satisfy the basic conditions for the small business concessions. You were under 55 years at the time of the CGT event and you now know of the requirements to roll-over the amount into a complying superannuation fund. You have a current complying superannuation fund and will pay the remainder of the capital gain into the fund immediately upon receiving a positive ruling.

Your tax agent was reluctant to pursue any further reductions of the capital gain. You questioned the gain and asked if there were any other reductions and/or exemptions but he did not advise of the retirement exemption. It was not until you were preparing your return for the 2009-10 income tax year that a friend advised there may have been the retirement exemption and you researched this.

This appears to be an acceptable explanation for the period of extension required. There would be no prejudice to the Commissioner or unsettling of people by allowing the extension. There does not appear to be any mischief involved. Disallowing the extension would mean that the retirement exemption could not be applied. The Commissioner would consider it fair and equitable in these circumstances to exercise his discretion.

An extension of time is allowed for you to make the choice to apply the retirement exemption. You may request that the Commissioner issue an amended assessment after first contributing the exempt amount to your superannuation fund.