Edited version of administratively binding advice

Authorisation Number: 1012476576995

Advice

Subject: Deferral of time for lodging a 'capital gains tax cap election' form

Question

Will the Commissioner, under subsection 388-55(1) of Schedule 1 to the Taxation Administration Act 1953, defer the time for lodging a 'capital gains tax cap election' form under subsection 292-100(9) of the Income Tax Assessment Act 1997?

Advice/Answers

No

This advice applies for the following period

Income year ended 30 June 2010

The arrangement commences on:

Not applicable

Relevant facts and circumstances

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

In the 2009-10 income year, your client (the Taxpayer) sold a capital gains tax (CGT) asset.

You stated that the Taxpayer met the conditions to access the CGT small business concessions. In order to reduce the capital gains tax payable, the Taxpayer chose to utilise the CGT small business retirement exemption by contributing a specified amount to a superannuation fund. You added that the contribution had to be made as the Taxpayer was less than 55 years of age at that time.

You stated that, following discussions with a representative of your firm, the Taxpayer would organise a contribution of the specified amount to be made to a complying superannuation fund (the Fund). You did not, however, state if the need for a completed 'capital gains tax cap election' form (the Approved Form) to accompany the contribution was covered in any of the discussions.

The relevant letter provided to the Australian Taxation Office (the ATO) indicated that the Taxpayer was unaware that the Approved Form needed to be lodged with the Fund at the time of making the contribution.

In another letter provided to the ATO, the Taxpayer referred to the telephone conversation they had with the Fund regarding a lump sum deposit and to their request to the Fund that their contribution be allocated to their superannuation account. The letter did not make any reference to the lump sum deposit being in relation to a CGT small business retirement exemption.

Towards the end of the 2009-2010 income year the Taxpayer deposited a specified amount in the Fund's account with a financial institution as contribution. You stated that although the Taxpayer had, on the phone, told a staff member of the Fund's administrator that the contribution was in relation to a CGT small business retirement exemption and provided all the information verbally, the staff member did not direct the Taxpayer to complete the Approved Form.

Shortly afterwards, two letters from the Fund to the Taxpayer, with 'Voluntary contribution' as the caption, confirmed that two contributions of an equal amount each made to the Fund were allocated to the Taxpayer's account in the same quarter in accordance with the Taxpayer's investment strategy.

As the Approved Form was not given by the Taxpayer, the Fund subsequently treated the contribution as a non-concessional contribution.

In the early part of the 2012-13 income year, the Taxpayer received from the ATO a notice of excess-contributions tax. The Approved Form was subsequently provided to the Fund for processing, as was mentioned in a letter from the Fund to the Taxpayer in the same quarter. In that letter, the administrator of the Fund responded, among other things, that:

(a) providing the Approved Form to the Fund some 24 months after the Fund's receipt of the contribution presented a difficulty to the Fund as legally the Fund could not process the contribution in the nature the Taxpayer requested by reason of paragraph 292-100(9)(b) of the Income Tax Assessment Act 1997 (the ITAA 1997);

(b) to enable the Fund to process the Taxpayer's choice, evidence of the ATO granting the Taxpayer a relief from the requirement of paragraph 292-100(9)(b) on the likely basis of an oversight by the Taxpayer of an entitlement under the ITAA 1997 must be provided to the Fund; and

(c) as there would be considerable amount of work involved to adjust the Fund's records, the Taxpayer had to reimburse the Fund' for a specified amount to cover its cost.

The Taxpayer then requested the ATO for a private ruling on whether they could fill in the Approved Form and lodge it with the Fund (after contribution had already been made to the Fund). In its response the ATO advised the Taxpayer that pursuant to paragraph 292-100(9)(b) of the ITAA 1997 the Approved Form must be provided to the Fund no later than the day the Taxpayer made the contribution and, for that reason, it could not provide the Taxpayer with a private ruling on, or an exemption from, that provision.

You subsequently objected to the excess-contributions tax being levied. The objection was later withdrawn on the basis that an advice should first be obtained from the ATO on whether the ATO could give a deferral of time to lodge the Approved Form.

In an administratively binding advice given to the Taxpayer, the ATO advised that a choice under subsection 292-100(9) of the ITAA 1997 could not be made after contribution had been made. The Taxpayer has since paid the excess-contributions tax due.

You seek the ATO's advice on whether the Commissioner will exercise his discretion under subsection 388-55(1) of Schedule 1 to the Taxation Administration Act 1953 (the TAA) to defer the time for the Taxpayer to lodge the Approved Form with the Fund under paragraph 292-100(9)(b) of the ITAA 1997 so as to treat the contribution already made by the Taxpayer to the Fund as a CGT exempt amount.

Relevant legislative provisions

Income Tax Assessment Act 1997 Paragraph 103-25(3)(b).

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Section 152-300

Income Tax Assessment Act 1997 Section 152-305

Income Tax Assessment Act 1997 Subsection 152-310(1)

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Subsection 292-90(1)

Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(iii)

Income Tax Assessment Act 1997 Subsection 152-320(1)

Income Tax Assessment Act 1997 Subsection 292-100(1)

Income Tax Assessment Act 1997 Subsection 292-100(7)

Income Tax Assessment Act 1997 Subsection 292-100(9)

Taxation Administration Act 1953 Schedule 1, Section 388-50(1)

Taxation Administration Act 1953 Schedule 1, Subsection 388-55(1).

Reasons for decision

Summary

The Commissioner is of the view that it would not be appropriate for him to exercise his discretion to defer the time for the Taxpayer to lodge the Approved Form. This view has been reached after considering the principles established by the relevant case law and the guidelines provided in the ATO's relevant law administration practice statement in conjunction with the facts of this case,

Detailed reasoning

Division 152 of the ITAA 1997 provides for small business concessions in relation to capital gains. Subdivision 152D specifically deals with the small business retirement exemption. Section 152-300 states that an individual can choose to disregard a capital gain for a capital gains tax (CGT) event happening to a CGT asset of their small business if the capital proceeds from the event are used in connection with their retirement.

Subsection 152-305(1) of the ITAA 1997 sets out the requirements for claiming the CGT small business retirement exemption. Relevantly, paragraphs (b) and (c) of subsection 152-305(1) require the individual, who is under 55 years of age, to contribute an amount equal to the asset's CGT exempt amount to a complying superannuation fund at the later of:

· when the choice is made; or

· when the proceeds are received.

The basic conditions in Subdivision 152-A of the ITAA 1997 must also be satisfied to disregard the capital gain. Subsection 152-310(1) provides that when the choice is made under section 152-305, the elected part of the capital gain from the CGT asset is disregarded.

Subsection 152-320(1) of the ITAA 1997 provides that an individual's CGT retirement exemption limit is $500,000 (reduced by the CGT exempt amounts of CGT assets specified in choices previously). Paragraph 103-25(3)(b) requires the choice in relation to the small business retirement exemption to be made in writing.

Section 292-100 of the ITAA 1997 sets out further requirements for a contribution to satisfy the CGT small business concessions and not be considered a 'non-concessional contribution' under subparagraph 292-90(2)(c)(iii). Under that section, a contribution equal to all or part of the capital gain from a CGT event that an individual disregarded under subsection 152-305(1) must be made to a complying superannuation fund on or before the later of:

· the day they are required to lodge their income tax return; or

· 30 days after the day they receive the capital proceeds from the CGT event.

In accordance with subsection 292-100(9) of the ITAA 1997, any choice must be made in the approved form and given to the superannuation provider in relation to the complying superannuation fund on or before the time when the contribution is made.

Section 292-100 of the ITAA 1997 does not provide the Commissioner with a discretion to allow a choice under subsection 292-100(9) of the ITAA 1997 to be made at a later time.

The legislation clearly provides that the small business retirement exemption is a choice that must be actively elected by the taxpayer in accordance with the specific requirements. The Explanatory Memorandum (EM) to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 supports this assertion with paragraph 1.102 stating:

A contribution will only count towards the CGT cap if the person notifies their superannuation provider before, or when the contribution is made…. It also provides the person with the choice as to whether all or part of the contribution uses their non-concessional contributions cap or their CGT cap. [bold emphasis added]

This paragraph also highlights the importance of making the appropriate election because the taxpayer concerned can choose how much of a contribution to apply the concession to.

The Taxpayer has clearly not met the requirements under section 292-100 of the ITAA 1997 to exempt the capital gain from the non-concessional contributions cap. The choice was not made in writing, in the approved form, on or before the time that the contribution was made to the Fund as set out in subsection 292-100(9). There is no discretion provided to the Commissioner in the ITAA 1997 to defer the time of making this choice.

Subsection 388-55(1) of Schedule 1 to the TAA provides the Commissioner with the discretionary power to defer the time within which an approved form is required to be given to the Commissioner or another entity.

The Capital gains tax cap election form (NAT 71161), which is required to be lodged with a complying superannuation fund at or before the contribution is made under subsection 292-100(9) of the ITAA 1997, is an approved form as defined in section 388-50 of Schedule 1 to the TAA. Therefore, consideration should be given to the possible application of subsection 388-55(1) of Schedule 1 to the TAA in this situation.

In MW McIntosh Pty Ltd & Anor v Federal Commissioner of Taxation (McIntosh)¹, the Full Federal Court held that the application of subsection 388-55(1) of Schedule 1 to the TAA is generally confined to a provision that required the giving of an approved form in fulfilment of an obligation. The application did not extend to a permissive provision, at least where the failure or omission to act within the time limit did not adversely impact on existing rights and privileges. Justice Edmonds went on to clarify that the adverse impacts had to be to 'existing rights and privileges' and not merely where the failure to act within the time would result in the loss of an opportunity to gain a right or privilege.

The choice to apply the small business retirement exemption is optional and will only occur when the taxpayer elects, in the approved form, for it to be applied. Failure to apply for the CGT concession will not adversely impact on any existing right or privilege and will result only in the loss of an opportunity to gain a privilege. Therefore, following the principles of McIntosh, subsection 388-55(1) of Schedule 1 to the TAA has no application in this case.

Practice Statement Law Administration PS LA 2011/15 Lodgement obligations, due dates and deferrals provides guidance to tax officers on when it is appropriate for the Commissioner to defer lodgement obligations. Paragraph 141 states that the existence of this discretion does not mean that the entity has an entitlement to it being exercised. Where possible, a lodgement deferral request should be made before the lodgement due date (paragraph 145). The Commissioner will generally grant a deferral where it is fair and reasonable to do so having taken into account all of the material facts.

Paragraph 150 of PS LA 2011/15 goes on to provide that the Commissioner generally considers it fair and reasonable where the inability to lodge by the due date is reasonably attributed to exceptional or unforseen circumstances such as natural disasters, serious illness or death, impeded access to records or advanced age or youth of the individual.

PS LA 2011/15 makes no reference to ignorance of the legal requirements or lack of appropriate advice as legitimate reasons to defer lodgement obligations. The application of the discretion several years after the required date of lodgement is also not consistent with the guidelines provided in PS LA 2011/15.

In accordance with PS LA 2011/15, the discretionary power to defer the lodgement of an approved form under subsection 388-55(1) of Schedule 1 to the TAA should not be applied in this case.

In ATO Interpretative Decision ATO ID 2005/64 Income Tax Commissioner's Discretion: deferring due date for issuing distribution statements, the Commissioner did not exercise his discretion under subsection 388-55(1) of Schedule 1 to the TAA. It was determined that the provision in question refers to an approved form that 'is required to be given' rather than 'was required to have been be given' and that the Commissioner cannot exercise his discretion under subsection 388-55(1) of Schedule 1 to the TAA to retrospectively defer the time for lodgement. This decision further supports our assertion in this case.

In conclusion, after considering the facts of this case, the Commissioner does not find it appropriate to exercise his discretion under subsection 388-55(1) of Schedule 1 to the TAA to defer the time for lodging the Approved Form under subsection 292-100(9) of the ITAA 1997.

¹ [2009] FCAFC 88; (2009) 178 FCR 100; (2009) 2009 ATC 20-119; [2009] ALMD 6214; (2009) 76 ATR 231