Edited version of your written advice

Authorisation Number: 1051496760445

Date of advice: 28 March 2019

Ruling

Subject: Capital gains tax - small business concessions - extension of time

Question 1

Will the Commissioner allow further time under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for you to choose to apply a small business rollover concession under Division 152 of the ITAA 1997 to a capital gain that arose in the year ended 30 June 20XX?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2019

The scheme commenced on:

1 July 2015

Relevant facts

You reported a capital gains tax event in your 20XX income tax return.

You used the services of a tax agent to prepare your income tax return.

The gain was realised from the sale of a business that you operated.

You applied the 50% small business active asset CGT discount to reduce the gain.

You included a capital gain in your 20XX income tax return.

The aggregated turnover was less than $2 million.

The net asset value of the company, its affiliates and connected entities was less than $6 million.

You had planned on acquiring a replacement business and did so when you acquired a new business in the 20XX financial year.

You incurred expenses in establishing the new business.

You have engaged the services of a new tax agent who has reviewed your previous income tax returns.

You wish to alter your choice and to apply further small business concessions to which you previously applied the 50% active asset reduction.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 103-25(1)

Income Tax Assessment Act 1997 paragraph 103-25(1)(b)

Income Tax Assessment Act 1997 subsection 103-25(2)

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

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-205

Income Tax Assessment Act 1997 section 152-305

Reasons for decision

The general rule about making a choice is that any choice that may be made by a taxpayer under the CGT provisions must be made by the day the taxpayer lodges the income tax return for the relevant income year in which the capital gains tax event in question happened, or within a further time permitted by the Commissioner.

Under subsection 103-25(2) of the ITAA 1997, the way you prepare your income tax return is sufficient evidence of the making of the choice. Paragraph 103-25(3)(b) of the ITAA 1997 however, contains an exception in relation to the small business retirement exemption, as subsections 152-315(4) and (5) of the ITAA 1997 require the choice for this exemption to be made in writing.

The general rule is that a choice available under the capital gains tax (CGT) provisions, once made, cannot be changed. 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 and accordingly included a capital gain in their income tax return has not made a choice and can, if the Commissioner allows further time, later make a choice for a CGT concession and amend their return to reduce or disregard the capital gain.

In certain circumstances, the Commissioner may consider that a taxpayer has not made a choice, for example, the income tax return was completed without the taxpayer being aware that a CGT event had happened that required the taxpayer to make a choice or that a choice is available. In such cases, the Commissioner may allow the taxpayer further time to make a choice.

In your case, when you lodged your income tax return for the 20XX income year, you made a choice to apply 50% active asset reduction under Subdivision 152-C of the ITAA 1997. Since you have already made a choice, the Commissioner is unable to exercise his discretion to extend further time to reverse the choice or to make a further choice.