CGT - Extension of time to choose scrip for scrip roll-over

Will further time be allowed by the Commissioner under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for a taxpayer to choose scrip for scrip roll-over under paragraph 124-780(3)(d) of the ITAA 1997 for a capital gain, where, the taxpayer has already lodged their income tax return and the capital gains tax (CGT) discount in Division 115 of the ITAA 1997 has applied to the capital gain?

Yes, in the particular circumstances described, the Commissioner will exercise his discretion under paragraph 103-25(1)(b) of the ITAA 1997 to allow further time for the taxpayer to choose scrip for scrip roll-over under paragraph 124-780(3)(d) of the ITAA 1997.

During the year ended 30 June 2000 the taxpayer held shares in 'A' company and in June 2000 they were exchanged for shares in 'B' company.

The taxpayer's shares in 'A' company and 'B' company were held in a personal portfolio service. All correspondence and documentation in relation to the exchange of 'A' company shares for 'B' company shares was received by the manager of the personal portfolio service.

The management of the personal portfolio service failed to keep the taxpayer fully informed as to the details of the exchange of 'A' company shares for 'B' company shares, particularly their choices in respect to CGT.

The taxpayer made a capital gain on the transaction and after applying the 50% CGT discount available under Division 115 of the ITAA 1997 included half the capital gain in their income tax return for the year ended 30 June 2000.

Approximately one month after lodging their return, upon being made aware of the availability of scrip for scrip roll-over, the taxpayer sought to make a choice to obtain scrip for scrip roll-over as provided in paragraph 124-780(3)(d) of the ITAA 1997.

The general rule is that a choice available under the CGT provisions once made can not 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 (see section 103-25 of the ITAA 1997).

The CGT discount in Division 115 of the ITAA 1997 does not require a choice to be made for its application but applies automatically if its conditions are satisfied and a choice is not made otherwise. Where the CGT discount has applied to a capital gain without consideration of the scrip for scrip roll-over no choice has been made and hence a choice for scrip for scrip roll-over may later be made subject to further time being granted.

In Hunter Valley Developments Pty Ltd and Ors v. Cohen (1984) 58 ALR 305; (1984) 3 FCR 344; (1984) 7 ALD 315, Wilcox J summarised principles to guide the exercise of a discretion. These principles are of a general nature applicable where there is a discretionary power to extend a procedural time limit and have been applied to the exercise of the power of the Commissioner to extend time in the following cases: Lighthouse Philatelics Pty Ltd v Federal Commissioner of Taxation (1991) 103 ALR 156; 22 ATR 707; (1991) 25 ALD 257; (1991) 32 FCR 148; 91 ATC 4942. Comcare v A'Hearn (1993) 119 ALR 85; 94 ATC Case 15/94; 28 ATR AAT Case 9399; 94 ATC Case 18/94; 28 ATR AAT Case 9192A.

With respect to the exercise of the discretion contained in paragraph 103-25(1)(b) of the ITAA 1997 the Commissioner has considered the following factors: (1) there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension. (2) account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension (3) account must be had of any unsettling of people, other than the Commissioner, or of established practices (4) there must be a consideration of fairness to people in like positions and the wider public interest (5) whether there is any mischief involved; and (6) a consideration of the consequences to the taxpayer in granting an extension.

The taxpayer sought further time to choose scrip for scrip roll-over only a short time after they had lodged their income tax return. If additional time was allowed, there would be no prejudice to the Commissioner, nor would there be any unsettling of people or of established practices. Anyone in a similar position would be able to request a similar extension and there was no mischief involved in the request. The consequence of allowing further time is that the scrip for scrip roll-over would be available, enabling the taxpayer to take advantage of the choice allowed in the legislation.

Having regard to all the circumstances, it is considered reasonable for the Commissioner to allow the taxpayer further time under paragraph 103-25(1)(b) of the ITAA 1997 of approximately one month after lodgment of the income tax return, to make the choice under paragraph 124-780(3)(d) of the ITAA 1997.