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Edited version of private advice
Authorisation Number: 1051637456442
Date of advice: 4 March 2020
Subject: Extension of time to apply the small business rollover
Ruling
Question
Will the Commissioner exercise his discretion to allow an extension of time provided for in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the trust further time to choose to apply the small business rollover to the capital gain that arose in the 2017-18 financial year?
Answer
Yes, an extension will be granted to XXXX. Under Subdivision 152-D of the ITAA 1997 itis a requirement to make a valid choice in writing. The written choice must identify - i) the CGTexempt amounts and ii) the percentage of each CGT exempt amount that is attributable to each of those CGT concession stakeholders.
When the trust lodged its tax return for the year ended 30 June 2018, a valid written choice was not effectively made in respect of the small business retirement exemption and therefore an extension of time is allowed for you to make a choice in relation to the small business rollover.
This ruling applies for the following period:
Year ending 30 June 2020
The scheme commences on:
22 February 2018
Relevant facts and circumstances
The trust sold a property and made a capital gain in the 2017-18 financial year
The trustee's resolution dated 30 June 2018 (the resolution) distributed the income of the trust only to X and this included the income from the trust estate and the income from PP and NPP.
The resolution, resolved that the capital gain or capital loss be applied in a certain manner and distribution. The resolution did not stipulate the amount of the gain to be disregarded under the retirement exemption or the percentage of the capital gain that was to be applied to each of the CGT concession stakeholders. No other valid choice was made in writing.
X is the only significant individual in the CGT event year ended 30 June 2018.
The trust is a small business entity with an aggregated turnover less than $2 million in the CGT event year.
The CGT asset satisfies the active asset test, as it was continually used and carried on in the farming business.
The basic conditions of the small business concessions are satisfied.
The trust and X and Y's income tax returns for the period ended 30 June 2018 were lodged on the basis that the capital gain from the sale of the land was reduced to nil by applying the general discount, the small business active asset reduction and the small business retirement exemption.
Your tax agent suffered from health issues at the time of lodgment and it was only discovered at a later date that it was determined that Y was not a significant individual (due to her not receiving any income distributions from the trust) and that the capital gain could not be distributed in the manner described in the trustee's resolutions.
You wish to make a choice to apply the small business rollover to the capital gain that remains after the application of the general discount and the small business active asset reduction.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 103-25
Income Tax Assessment Act 1997 Division 152
Income Tax Assessment Act 1997 section 152-315