Capital gains tax: Choice and the small business roll-over

Does the inclusion of a capital gain in a taxpayer's income tax return without any consideration of the small business capital gains tax (CGT) concessions in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) constitute the making of a choice, and therefore prevent the taxpayer from later choosing the small business roll-over in section 152-410 of the ITAA 1997?

No. The inclusion of a capital gain in a taxpayer's income tax return without any consideration of the small business CGT concessions does not constitute the making of a choice, and therefore does not prevent the taxpayer from later choosing the small business roll-over in section 152-410 of the ITAA 1997.

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.

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 this case, due to an oversight, the taxpayer did not consider any of the CGT concessions and hence did not make any choice.

As the taxpayer satisfies the conditions for small business roll-over in section 152-410 of the ITAA 1997, the taxpayer may later choose the small business roll-over in Subdivision 152-E of the ITAA 1997 for the capital gain if the Commissioner allows further time to make a choice under paragraph 103-25(1)(b) of the ITAA 1997.