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Edited version of your written advice
Authorisation Number: 1051231499567
Date of Advice: 31 May 2017
Ruling
Subject: Capital Gains Tax - small business concessions
Question 1
Will the Commissioner grant an extension of time as provided in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for you to make a choice to utilise the small business capital gains tax (CGT) concessions?
Answer
Yes.
This ruling applies for the following periods:
The year ended 30 June 2015.
The year ended 30 June 2016.
The year ending 30 June 2017.
The scheme commences on:
19XX.
Relevant facts and circumstances
You acquired more than X% of the shares in a company after 20 September 1985.
The remaining X% of shares were owned by an unrelated entity.
After more than X years, you sold those shares resulting in a capital gain of a specified amount (including earnout right amount).
The earnout arrangement was entered into after DDMMYYYY.
In the relevent income tax return you claimed the 50% CGT discount on the capital gain of in relation to the disposal of your shares and included the earnout right as an assessable capital gain.
You initially thought that you did not qualify for the small business concessions due to the value of the company. You had not appropriately considered the rules in relation to your shareholding, affiliates and connected entities, and the active asset test.
Following the sale of your shares in the company, you looked for and had consideration of other business opportunities.
Upon a second review of the matter by your tax agent, you have been advised that the basic conditions under Subdivision 152-A of the ITAA 1997 were met.
Furthermore, your tax agent found that the active asset and maximum net asset value test were met, while you were also CGT concession stakeholder.
Your tax agent also sought a second opinion, who reviewed the transaction and the conditions regarding the application of the small business concessions, including the maximum net asset value test.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 152.
Income Tax Assessment Act 1997 Subsection 103-25(1).
Reasons for decision
Summary
The Commissioner will allow an extension of time for you to make the choice to apply the small business concessions.
Detailed reasoning
The general rule is that a choice available under the CGT provisions once made cannot be changed. Generally, such a choice must be made by the time the income tax return is lodged but may be made within such further time as the Commissioner allows under subsection 103-25(1).
A taxpayer who has considered the application of the CGT concessions and chosen a particular concession has made a choice which cannot later be changed. However, a taxpayer who did not consider the CGT concessions has not made a choice and can, if the Commissioner allows further time under subsection 103-25(1), later make a choice to apply a CGT concession and amend their return to reduce or disregard the relevant capital gain.
In this case, you did not consider any of the small business concessions as you were of the belief that you did not satisfy the basic conditions. However, upon further review you have been advised that you were eligible and could have made a choice with respect to the concessions at the time of lodging the relevant income tax return. You have acted promptly upon becoming aware of these circumstances. The Commissioner would not be prejudiced if additional time were allowed nor would there seem to be any evident unfairness to other taxpayers as a consequence of an extension being granted.
Therefore, it is considered reasonable for the Commissioner to grant an extension of time to make the choice in relation to the capital gain in relation to the sale of your shares. This extension of time to make a choice also extends to the capital gain on your earnout agreement where the relevant conditions are met under subdivision 118-I.
Further issues for you to consider
In your request you have indicated that you qualify for the relevant small business CGT concessions. The Commissioner has not considered your eligibility for the small business CGT concessions in this ruling. You should ensure that you satisfy the basic conditions and any other relevant conditions. More information is available in the publication Capital gains tax concessions for small business, which is available on our website www.ato.gov.au.