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Ruling

Subject: Extension of time - 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 time to make a payment to a capital gains tax (CGT) concession stakeholder?

Answer

Yes, he will allow an extension of time until 31 December 2015.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 June 2010

Relevant facts and circumstances

You were a trading company operating a business.

You have been operating for a period greater than 15 years.

You have had two issued shares since incorporation. One share is held directly by an individual and the second is held beneficially by the same individual via a bare trust.

The individual exceeds 55 years of age.

The individual meets the significant individual test.

The business was purchased by another company during the 2010-11 financial year.

The sale consideration was at market value and all dealings were at arms length.

The sale proceeds will be received over a five year period in monthly instalments.

The five year duration is common in your industry and gives the purchaser the ability to meet cash flow demands. The purchaser does not have the funds available to settle the transaction up front.

You require an extension of time to make the payment to the CGT concession stakeholder.

The payment cannot be prior to this date as the proceeds from the sale are required before the payment can be made to the CGT concession stakeholder.

You satisfy the basic conditions for small business relief.

Subparagraph 152-125(1)(a)(i) of the ITAA 1997 applies as you have disregarded your capital gain under the small business 15 year exemption.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-110 and

Income Tax Assessment Act 1997 section 152-125.

Reasons for decision

Summary

The Commissioner will allow an extension of time for the capital gain to be paid to the CGT concession stakeholder.

Detailed reasoning

The CGT small business concessions reduce the capital gain on business assets that must be included in a taxpayer's assessable income.

To access the concessions, 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.

Small business 15 year exemption

Under section 152-110 of the ITAA 1997 you can disregard a capital gain from a CGT event happening to a CGT asset you have owned for at least 15 years if you:

· satisfy the basic conditions

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

· if you are a company or trust you had a significant individual for a total of at least 15 years of the whole period of ownership and the individual who was a significant individual just before the CGT event was:

· at least 55 years old at that time and the event happened in connection with their retirement, or

· permanently incapacitated at that time.

Distributions of the exempt amount

If a capital gain made by a company or trust is disregarded under the 15 year exemption any distributions made by the company or trust of that exempt amount to a CGT concessions 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 under subsection 152-125 of the ITAA 1997 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 times as allowed by the Commissioner

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

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

Commissioner's discretion

In determining if the discretion in subsection 152-125(4) of the ITAA 1997 will be exercised the Commissioner has considered the following factors:

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

· account must be had to any prejudice to the Commission 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

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

· there must be a consideration of fairness to people in like positions and the wider public interest

· whether there is any mischief involved, and

· consideration of the consequences.

Application to your circumstances

In your case you have advised that you satisfy the basic conditions for the small business concessions and the capital gain has been disregarded under the small business 15 year exemption. However, you are unable to make the distribution to your CGT concession stakeholder until the total sale proceeds are received from the purchaser. You have requested an extension of time to make the distribution.

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 the wider public. There does not appear to be any mischief involved. It would be fair and equitable to allow an extension of time.

As the final instalment of the sale proceeds will be received in the 2015-16 financial year, the Commissioner will allow an extension of time for a payment to be made to the CGT concession stakeholder.