Edited version of private advice

Authorisation Number: 1051660306453

Date of advice: 4 May 2020

Ruling

Subject: Requesting an extension of time for choice - CGT

Question

Will the Commissioner allow further time as provided in paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for you to choose to apply the small business retirement exemption in subdivision 152-D of the ITAA 1997 to a capital gain that arose in the 2018 financial year?

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

1. The Taxpayer operated business for many years.

2. The Taxpayer sought advice from a tax agent regarding eligibility to claim the small business CGT concessions. The tax agent advised that the taxpayer met the basic conditions under Subdivision 152-A of the ITAA 1997 for the 2018 financial year and therefore qualified to choose to apply Subdivision 152-C small business reduction to reduce the capital gains remaining after applying the general 50% CGT discount.

3. The Taxpayer intended to also apply Subdivision 152-D small business retirement exemption to further reduce the assessable capital gains remaining after applying the 50% CGT discount. However, the tax agent advised that this subdivision could not be accessed by the taxpayer. Therefore, based on the tax agents advice the 2018 tax return was lodged and the taxpayer did not apply the Subdivision 152-D small business retirement exempt to further reduce the remaining assessable capital gains.

4. The Taxpayer appointed a new tax agent.

5. The new agent became concerned that the previous tax agent had made an error concerning Subdivision 152-D.

6. The new tax agent engaged a consulting firm to consider whether the previous tax agent's advice had been correct in relation to Subdivision 152-D of the ITAA 1997.

7. The consultant determined that the advice provided by the initial tax agent was incorrect. They further advised that the taxpayer would have qualified under Subdivision 152-D and could have chosen to further reduce the remaining capital gains up to the CGT exempt amount that is attributable to its CGT concession stakeholders.

8. However, the taxpayer's 2018 income tax return had already been lodged without such a choice being made.

9. The taxpayer has advised that the taxpayer has a minimum of two CGT concession stakeholders who were under the age of 55 at the time of the relevant CGT events.

10. The taxpayer requests the Commissioner's allows an extension to the period within which the taxpayer can choose to apply Subdivision 152-D in order to make payments equal to each of its CGT concession stakeholders CGT exempt amount to their superannuation funds in accordance with section 152-325 of the ITAA 1997.

Relevant legislative provisions

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

Other Relevant Comments

The CGT retirement exemption is available to companies and trusts if the conditions are satisfied and include a requirement under Section 152-325 of the ITAA 1997 regarding payment.

Specifically s152-325(4) states as follows:

The payment must be made by:

(a) if paragraph (1)(a) applies - 7 days after the company or trust makes the choice; and

(b) otherwise - the later of:

(i) 7 days after the company or trust makes the choice; and

(ii) 7 days after the company or trust receives an amount of capital proceeds from the *CGT event.

Failure to make a payment by the end of seven days after making the choice to a CGT concession stakeholder (if they are 55 years old or older) or into a complying super fund or RSA (if the stakeholder is under 55 years old) will mean the conditions are not satisfied and the retirement exemption will not be available. Further information is available on ato.gov.au by searching '52290'.

In your request you have indicated that you qualify for the small business retirement exemption. The Commissioner has not considered your eligibility for the small business retirement exemption in this ruling. You should ensure that you satisfy the basic conditions and any other relevant conditions. More information is available on website ato.gov.au.

Reasons for decision

An entity may choose to disregard all or part of a capital gain under the small business retirement exemption if it satisfies certain conditions.

The general rule is that a choice available under the capital gains tax (CGT) provisions once made cannot be changed. Generally, such a choice must be made by the time the income tax return is lodged, or within such further time as the Commissioner allows (subsection 103-25(1) of the ITAA 1997).

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 to apply and amend their return to reduce or disregard the capital gain.

In determining whether the Commissioner should allow an extension of time the following factors will be considered (QC 18383):

·         you have an acceptable explanation for not making the choice by the time it should have been made

·         it would be fair and equitable in the circumstances to allow you more time to make a choice

·         prejudice to the ATO that might result from additional time being allowed to you (the absence of prejudice by itself is not enough to justify granting an extension)

·         it would be fair and equitable to people in similar positions and the wider public interest

·         any mischief is involved.

Application to your circumstances

The entity's previous tax agent incorrectly advised that the small business exemption was not available resulting in the retirement exemption not being applied. Due to the advice from the previous tax agent, the entity did not consider the relevant CGT concessions and effectively has not made a choice.

This and other factors are an acceptable explanation for the period of extension required. There would be no prejudice to the ATO by allowing the extension. There is no mischief involved. The Commissioner considers it fair and equitable in these circumstances for an extension to be allowed.

An extension of time is allowed for you to make the choice to apply the retirement exemption.