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Edited version of private advice
Authorisation Number: 1012658346957
Ruling
Subject: Capital gains tax
Question
Will the Commissioner exercise the discretion set out in subsection 152-125(4) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow further time to make the payment required by paragraph 152-125(1)(b) of the ITAA 1997?
Answer
No, because paragraph 152-125(1)(b) of the ITAA 1997 is not applicable in these circumstances.
This ruling applies for the following periods
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You own shares in a company.
You are in the process of retiring from the business and have entered negotiations to sell your shares to the existing shareholders.
It is expected that the capital gains tax (CGT) event will take place in the 2014-15 financial year.
The existing shareholders are unable to pay the full capital proceeds within 2 years of the contract being executed.
The terms of the sale indicate an X year instalment period.
You are entitled to apply the 15 year exemption to disregard any capital gain made on the sale of the shares.
Relevant legislative provisions
Income Tax Assessment Act 1997 subdivision 152-B
Income Tax Assessment Act 1997 subparagraph 152-125(1)(b)
Income Tax Assessment Act 1997 subsection 152-125(4)
Reasons for decision
Subdivision 152-B of the ITAA 1997 provides a small business 15 year exemption as part of the CGT small business relief provisions. If you qualify for the small business 15 year exemption, the capital gain is entirely disregarded and it is unnecessary to apply any other concessions.
Payments to a company's or trust's CGT concessions stakeholder
Subparagraph 152-125(1)(b)of the ITAA 1997 states that:
the company or trust make one or more payments (whether directly or indirectly through one or more interposed entities) in relation to the exempt amount within 2 years after the relevant CGT event to an individual who was a CGT concession stakeholder of the company or trust just before the event.
This section only applies in the circumstances where a company or trust has made a capital gain that they have then disregarded under the 15 year exemption. The legislation allows the company or trust 2 years to make an exempt payment to their CGT concession stakeholder. There is no such requirement for an individual that has disregarded a capital gain under the 15 year exemption.
Application to your circumstances
In this case, you intend to sell your shares and make a capital gain. You are entitled to disregard this capital gain under the 15 year exemption. The 2 year time limit discussed above has no application in these circumstances.