Edited version of private advice

Authorisation Number: 1052236023037

Date of advice: 8 April 2024

Ruling

Subject: CGT - small business concessions - extension of time to make a choice

Question

Will the Commissioner exercise their discretion under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to choose to apply any available small business capital gains tax concessions to a capital gain that arose in the 20XX income year?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX.

The scheme commenced on:

DD MM 20XX

Relevant facts and circumstances

You entered into a contract for the sale of farmland in the 20XX income year. It was a long contract and settlement occurred on DD MM 20XX.

When you lodged your tax return for the 20XX income year, you did not include the capital gain. You have now received the funds from settlement and would like to amend your 20XX income year tax return to include the capital gain and apply the small business CGT concessions.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-10(3)

Income Tax Assessment Act 1997 section 103-25

Taxation Determination TD 94/89 Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income?

ATO Interpretative Decision ID 2003/103 Capital gains tax: Choice and the small business roll-over

Reasons for decision

Under subsection 103-25(1) of the ITAA 1997, a choice must be made either by the day you lodged the relevant income tax return in which the CGT event occurred, or within a further time allowed by the Commissioner.

Subsection 104-10(3) of the ITAA 1997 provides that the time of a CGT event is either when you enter into the contract for the disposal, or, if there is no contract, then the time is when the change of ownership occurs. Taxation Determination TD 94/89 Income tax: capital gains: in what year of income is a taxpayer required for tax purposes to include a capital gain or loss in relation to land disposed of under a contract which is made in one year of income, but which is settled in a later year of income? provides that a taxpayer is not required to include any capital gain or loss in the appropriate year until an actual change of ownership occurs.

The general rule provided in ATO ID 2003/103 is that once a choice available under the CGT provisions has been made, it cannot be changed. A taxpayer who did not consider the CGT concessions, however, has not made a choice. If the Commissioner allows further time, they can make a choice for a CGT concession later and amend their return to reduce or disregard the capital gain.

You lodged your 20XX income year tax return and did not include the CGT event. This was a reasonable approach in line with TD 94/89 as change of ownership had not yet occurred at the time of lodgment. You are now required to lodge an amendment to your 20XX income year tax return to reflect the capital gain and plan to do so. Given that you did not include the CGT event in your 20XX income year tax return, you did not consider the small business concessions at the time of lodgment. You have therefore not made a choice in relation to the concessions.

After taking into consideration your relevant circumstances, including the fact that no mischief is involved, there is no unsettling of other people or established practices, the Commissioner will allow an extension of time under paragraph 103-25(1)(b) of the ITAA 1997 to make a choice to apply any available CGT small business concessions to the gain arising from the sale.

The private ruling has been limited to the question requested upon application which is whether the Commissioner will exercise the discretion under paragraph 103-25(1)(b) of the ITAA 1997. The Commissioner has not considered your eligibility for the small business CGT concessions.