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Ruling

Subject: Commissioner's Discretion: Replacement-asset roll-overs

Question 1

Will the Commissioner exercise his discretion in accordance with subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the Entity a further period from 1 July 2012 to 30 June 2013 in which to incur expenditure on the replacement asset?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The Entity's tax return for the year ended 30 June 2011 contains a small business roll-over election in its Capital Gains Tax Schedule.

The Entity had a building that was solely used for income producing purposes destroyed in a storm in 2010.

After 6 months of negotiation the insurance claim was paid to the Entity.

Planning for the new building commenced. Updates to the existing infrastructure were required.

Plans were submitted to the council with approval taking approximately seven months. The construction certificate was not issued until after the year of the small business roll-over election.

Work/expenditure commenced immediately after the construction certificate was issued.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

Reasons for decision

Summary

The Commissioner will exercise his discretion and grant an extension of time for a further 12 months from 1 July 2012 to 30 June 2013 in relation to the CGT replacement asset roll-over relief election made for the year ended 30 June 2011.

Detailed reasoning

Section 124-70 of the ITAA 1997 allows you to choose a roll-over if a CGT asset (the original asset) you own, or part of it, is lost or destroyed.

If you receive money for the CGT event then further conditions are imposed by section 124-75 of the ITAA 1997.

Subsection 124-75(2) of the ITAA requires that you must incur expenditure in acquiring a replacement CGT asset - or, if part of the original asset was lost or destroyed, requires you incur capital expenditure in repairing or restoring it.

124-75(3) of the ITAA requires that:

At least some of the expenditure must be incurred:

a) within a defined period of time 'or within such further time as the Commissioner allows in special circumstances, before the event happens; or

b) no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens.

Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the ITAA 1197? states that the expression 'special circumstances' by its nature is incapable of a precise or exhaustive definition.

TD 2000/40 provides some examples of fact situations in which the Commissioner would, or would not, accept that special circumstances exist. Example 2 provides the following situation:

5. Gordon owned a wool processing factory which was destroyed by fire. Gordon immediately commences to negotiate to purchase a nearby factory, taking possession pending settlement. After lengthy negotiations, however, the purchase of the factory falls through. He then purchases another property but just outside the 2 year time period. On these facts, we would accept that Gordon has done what is reasonable to acquire a replacement asset and we would allow him further time.

In regards to the Entity the Applicant has advised that special circumstances existed that prevented the Entity meeting the expenditure requirements of section 124-75(3) citing:

· the extent of damage to the assets which required the complete demolition and rebuilding of one of assets (the storage shed);

· the 9 months taken to draw up plans for submission to Council;

· the delays in receiving building approvals, with final approval only being issued in September 2012.

The Applicant advised that the work on rebuilding commenced immediately upon receiving Council approval and is ongoing.

As found in Example 2 of TD 2000/40, it is considered that based on the facts provided the Entity has done what is reasonable to expedite the rebuilding, and therefore expenditure on their replacement CGT asset. It is accepted there are special circumstances warranting an extension of time.

Conclusion

After consideration of the Entity's special circumstances and the explanation of the delay, the Commissioner will exercise his discretion under subsection 124-75(3) of the ITAA 1997 to extend the period within which the expenditure must be incurred by the taxpayer to the year ended 30 June 2013.

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