Edited version of private ruling

Authorisation Number: 1011831834568

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Ruling

Subject: Capital Gains Tax (CGT) - small business concessions - extension of time to acquire a replacement asset

Question

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time period to allow you to acquire a replacement asset?

Answer

No.

This ruling applies for the following period:

1 July 2009 to 30 June 2011

The scheme commences on:

The relevant date in the financial year ended 30 June 2008

Relevant facts and circumstances

You disposed of an active asset under section 152-40 of the ITAA 1997.

You elected to defer the capital gain in respect of the relevant financial year. This election required a replacement asset to be acquired within two years after the relevant CGT event.

A considerable time after this period expired, you requested the Commissioner exercise his discretion to retrospectively extend the period to replace the asset.

This extension request provided a list of your activities to acquire a replacement asset. The list included the types of assets you had considered purchasing, the times when those considerations had been undertaken and the reasons why the purchases had not eventuated. You stated you were about to sign a purchase contract for a replacement asset.

You also advised that you had been actively looking for a suitable replacement active asset and the difficulties encountered. Many times over you had made a phone call regarding a prospective replacement asset but had not gone further as it was decided it was not a suitable replacement asset nor was there paperwork to support these phone calls. You said that the intention has always been to acquire a replacement asset.

Later you advised that the purchase contract for the replacement asset had now been signed although the asset was first looked at 12 months before the purchase and you only got serious about it around six months before the purchase.

You satisfy the Maximum Net Asset Value Test.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph 104-185(1)(a).

Income Tax Assessment Act 1997 subsection 104-190(2).

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Commissioner's discretion - extension of time to acquire a replacement asset

Under paragraph 104-185(1)(a) of the ITAA 1997 in order to apply the small business rollover, a replacement asset must be acquired within two years after the relevant CGT event. Subsection 104-190(2) of the ITAA 1997 explains that the Commissioner may extend the replacement asset period.

The Commissioner takes into account a number of factors in determining whether to exercise discretion to extend the replacement asset period in order for a taxpayer to acquire a replacement asset. The Commissioner considers the following:

· 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

· 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

· account must be had of any unsettling of people, other than the Commissioner, or of established practices

· there must be a consideration of fairness to people in like positions and the wider public interest

· whether there is any mischief involved

· a consideration of the consequences.

Application to your circumstances

You disposed of an active asset. Therefore you were required to acquire a replacement asset within two years after the relevant CGT event.

You provided a short list of your activities to acquire a replacement asset since the asset disposal. The list included the types of assets you had considered purchasing, the times when those considerations had been undertaken and the reasons why the purchases had not eventuated. You also provided details of the asset eventually purchased.

You also advised that you had been actively looking for a suitable replacement active asset and the difficulties encountered. Many times over you had made a phone call regarding a prospective replacement asset but had not gone further as it was decided it was not a suitable replacement asset nor was there paperwork to support these phone calls. You said that the intention has always been to acquire a replacement asset.

After considering both the relevant factors for determining whether to exercise the Commissioner's discretion and the specific circumstances of this case, we consider that your circumstances do not warrant an extension of time. This is for the following reasons:

· you have not previously requested an extension of time despite the fact that the period to acquire a replacement asset ended close to two years ago

· you applied for an extension of time now without any reason as to why the extension was not sought either prior to the expiry of the two years replacement period or some time over the following almost two years

· there were no documented attempts to acquire a replacement asset for a period of many months

· in the whole period since the original CGT event, insufficient attempts appear to have been made (from a documentation perspective) to acquire or enquire about a replacement asset

· it would not be fair and equitable to other taxpayers who are required to replace their assets within the specified legislative timeframes.

Therefore, the Commissioner will not exercise the discretion under subsection 104-190(2) of the ITAA 1997 to extend the period for acquiring the replacement asset.

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