Edited version of private ruling

Authorisation Number: 1011740741221

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Ruling

Subject: Commissioner's discretion

Notice of private ruling

Question 1

Whether the Commissioner will exercise his discretion under Sub-section 103-25(1) (b) of the Income Tax Assessment Act 1997(ITAA 1997) to allow a management trust further time to make a choice to disregard a capital gain from a CGT event?

Answer:

No.

Relevant facts and circumstances

During the year ended 30 June XXX a management trust sold a CGT asset and made a capital gain. They then used the following small business concessions as follows:

· Capital gain discount method

· CGT Concession small business

· Small business retirement exemption

The units in this trust were owned in three equal shares, two of the partners elected to utilise the retirement exemption which left a reduced capital gain of $XXX to be distributed to a X family trust. It was thought that X family trust could access the small business rollover on the acquisition of a replacement asset.

The X family trust was not eligible to utilise this concession however the management trust could have utilised the small business retirement exemption except that by declaring the capital gain in its relevant income it had already made a choice under Subsection 103-25 of the ITAA 1997.

An extension of time has been lodged in order that the eligible entity being The Management Trust could apply for the small business roll-over concession.

Relevant legislative provisions

Income Tax Assessment Act 1997 Sub-section 103-25(2)

Income Tax Assessment Act 1997 Sub-section 103-25(1)

Income Tax Assessment Act 1997 Sub-section 152-305(2)

Income Tax Assessment Act 1997 Sub-section 152-315(3)

Income Tax Assessment Act 1997 Sub-section 152-315(5)

Reasons for decision

Under sub-section 152-305(2) ITAA 1997, a choice needs to be made by the management Trust to use the small business retirement exemption.

Subsection 103 -25 (1) ITAA 1997 states:

A choice you can make under this Part or Part 3-3 must be made:

(a) by the day you lodge your *income tax return for the income year in which the relevant *CGT event happened; or

(b) Within a further time allowed by the Commissioner.

This means that the management trust needs to make the choice by the time they lodge their tax return, or within a further time allowed by the commissioner.

The management trust made a choice in its XXXX tax return to not apply for the small business retirement exemption..

Instances where the Commissioner will grant an extension of time are listed as follows in an ATO publication called Extension of time:

In some situations, you need to do something within a certain period of time to qualify for the concessions. A set period is usually prescribed. However, the law also provides the Commissioner with the discretion to allow you a longer period.

Examples include:

Active asset test: relevant business ceased - where your business has ceased, the active asset test requires the CGT event (for example, the sale of a former business asset) to happen within 12 months of the business ceasing, and

Small business rollover: acquisition of replacement asset - under the small business rollover you must acquire a replacement asset or make a capital improvement to an existing asset within the period starting one year before and ending two years after the last CGT event happens in the year for which you choose the rollover.

However, in both these cases, the Commissioner has the discretion to allow a longer period.

In determining whether to allow a longer period, the Commissioner will consider a range of factors such as:

· 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.

In this case a choice was made to apply the small business CGT retirement exemption to two of the trust distributions made, but not the other. The Commissioner will not provide a further period of time to alter this choice.