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Edited version of private ruling
Authorisation Number: 1011475148798
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Ruling
Subject: CGT - property destroyed - extension of time to rebuild
Question
Will the Commissioner allow under subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997), a period longer than 12 months after the end of the income year in which the event happens, to acquire a replacement asset?
Answer
Yes.
This ruling applies for the following period:
1 July 2009 to 30 June 2010.
1 July 2010 to 30 June 2011.
1 July 2011 to 30 June 2012.
The scheme commences on:
1 July 2009.
Relevant facts and circumstances
You used a property for income producing activities. This property was destroyed and you received compensation during the 2008-09 income year.
You have encountered a number of difficulties in preparing to rebuild.
You are requesting that an extension to the 12 month period to commence rebuilding or purchase elsewhere.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 100-10(1).
Income Tax Assessment Act 1997 Section 104-20.
Income Tax Assessment Act 1997 Paragraph 124-70(1)(b).
Income Tax Assessment Act 1997 Subsection 124-70(2).
Income Tax Assessment Act 1997 Section 124-75.
Income Tax Assessment Act 1997 Subsection 124-75(3).
Reasons for decision
Loss or destruction of an asset
You may be able to obtain a roll-over after an asset is lost or destroyed under paragraph 124-70(1)(b) of the ITAA 1997. You must receive money or another capital gains tax (CGT) asset or both as compensation for the event or under an insurance policy against the risk of loss or destruction of the asset (subsection 124-70(2) of the ITAA 1997).
If you receive money
As your original property was destroyed and you received money for the event happening from an insurance policy, you may have the option of choosing roll-over under section 124-75 of the ITAA 1997. You may choose roll-over only if:
- you incur expenditure in acquiring another CGT asset, or
- part of the original asset is lost or destroyed and you incur expenditure of a capital nature in repairing or restoring it.
Subsection 124-75(3) of the ITAA 1997 states that you must incur at least some of the expenditure:
- no earlier than one year before the event happens
- within one year after the end of the income year in which the event happens, or
- within such further time as the Commissioner allows with special circumstances.
Replacement asset
Section124-75 of the ITAA 1997 states that you are required to use the replacement asset for a reasonable time after you have acquired it, for the same purpose as the original asset.
Special circumstances for further time
Taxation Determination TD 2000/40 provides guidance on what are special circumstances for the purpose of subsection 124-75(3) of the ITAA 1997. The special circumstances are to be examined based upon the facts of the specific case.
In determining if the discretion would be exercised the Commissioner has considered the following factors:
- 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
- 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
- any unsettling of people, other than the Commissioner, or of established practices
- consideration of fairness to people in like positions and the wider public interest
- whether there is any mischief involved, and
- a consideration of the consequences.
Application to your circumstances
The property that you used for generating rental income was destroyed during the 2008-09 income year and you received money from an insurance policy in relation to the property during the same income year. Under the ordinary application of subsection 124-75(3) of the ITAA 1997 you have until 30 June 2010 to incur some of the expenditure in obtaining a replacement asset.
After considering the relevant factors above and the specific circumstances of the case the Commissioner will exercise the discretion under subsection 124-75(3) of the ITAA 1997 to extend the period within which at least some of the expenditure must be incurred.
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