Issue
Will the Commissioner allow further time under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) for a taxpayer to choose the small business roll-over in Subdivision 152-E of the ITAA 1997, if the taxpayer previously included a capital gain in their income tax return without any consideration of the small business capital gains tax (CGT) concessions in Division 152 of the ITAA 1997?
Decision
Yes. In the particular circumstances described, the Commissioner will allow further time under paragraph 103-25(1)(b) of the ITAA 1997 for the taxpayer to choose the small business roll-over in Subdivision 152-E of the ITAA 1997.
Facts
The taxpayer made a capital gain after 21 September 1999 on the disposal of goodwill in the 1999-2000 income year.
Due to an oversight by the taxpayer's former tax agent, the small business CGT concessions in Division 152 of the ITAA 1997 were not considered and the whole of the capital gain was returned in the taxpayer's income tax return. The taxpayer's new tax agent detected this oversight and almost immediately notified the Commissioner. The taxpayer would now like to choose the small business roll-over in Subdivision 152-E of the ITAA 1997 to apply after the small business 50% reduction has applied to the capital gain. The taxpayer satisfies the basic conditions under Subdivision 152-A of the ITAA 1997 and the requirements for small business roll-over under section 152-410 of the ITAA 1997.
Reasons for Decision
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 (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 and amend their return to reduce or disregard the capital gain.
In determining if the discretion to allow further time would be exercised, the Commissioner has considered the following factors: evidence of an acceptable explanation for the period of extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension), prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension), unsettling of people, other than the Commissioner, or of established practices, fairness to people in like positions and the wider public interest, whether any mischief is involved, and consequences of the decision.
The choice was not made within the required time only because of an oversight by the taxpayer's former tax agent in the preparation of the income tax return. The taxpayer's new tax agent detected the oversight and almost immediately notified the Commissioner.
Having considered the relevant factors above, against the taxpayer's circumstances, it would be reasonable for the Commissioner to allow an extension of time for the taxpayer to make a choice for the small business roll-over to apply to the capital gain made on the disposal of goodwill.