Issue
Will the Commissioner grant an extension of time under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to make a choice under subsection 118-145(1) of the ITAA 1997 where the taxpayer was unaware of the availability of the choice?
Decision
Yes. The taxpayer will be allowed an extension of time to make a choice under subsection 118-145(1) of the ITAA 1997 to treat a dwelling as their main residence.
Facts
The taxpayer acquired a dwelling after 19 September 1985, which became their main residence.
Later, the dwelling ceased to be the taxpayer's main residence, though they continued to own it. The taxpayer did not use the dwelling to produce assessable income and did not treat any other dwelling as their main residence.
The taxpayer made a capital gain on disposal of the dwelling.
The taxpayer lodged their income tax return for the income year in which the disposal occurred on the basis that they were only entitled to a partial main residence exemption. That is, for the period during which the dwelling was actually their main residence.
The taxpayer did not know that even though the dwelling had ceased to be their main residence, they could choose to continue to treat it as their main residence under subsection 118-145(1) of the ITAA 1997.
Several years after lodging the tax return, the taxpayer became aware of the choice.
The taxpayer immediately sought to amend their return for the year in which the dwelling was disposed of to take advantage of the choice. The taxpayer applied to the Commissioner for an extension of time to make this choice.
Reasons for Decision
The general rule is that a choice available under the CGT provisions once made cannot be changed. Such a choice must usually be made by the time the income tax return is lodged for the income year in which the CGT event happened or within such further time as the Commissioner allows (subsection 103-25(1) of the ITAA 1997).
A taxpayer who has not considered the availability of a CGT concession and has accordingly included a capital gain in their income tax return has not made a choice. Therefore, the taxpayer can later make the choice and amend their return to reduce or disregard the capital gain provided the Commissioner allows them further time to make the choice.
In this case, the taxpayer was not aware of the choice available to them under subsection 118-145(1) of the ITAA 1997 when they lodged their return. Therefore, the taxpayer has not made a choice.
The factors considered by the Commissioner in determining whether a taxpayer should be allowed an extension of time to make a choice are set out in ATO ID 2003/102.
In this case, the period of delay in making the choice was substantial. However, the taxpayer was eligible for the concession at the time they originally lodged their income tax return, they have acted promptly upon becoming aware of the concession and the Commissioner would not be prejudiced if additional time were allowed.
Therefore, it is considered reasonable for the Commissioner to grant the taxpayer an extension of time to make the choice under subsection 118-145(1) of the ITAA 1997.