Edited version of your private ruling

Authorisation Number: 1012434429660

Ruling

Subject: Commissioner's discretion extension of time to acquire replacement asset

Question

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

Answer:

No

This ruling applies for the following period

Year ending 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts and circumstances

During 20XX, you disposed of your interest in a business.

You state you satisfied the basic conditions for the capital gains tax concessions for small business. Therefore, you applied the 50% capital gains tax discount as well as the 50% active asset reduction to reduce the capital gain.

You state you satisfied the small business roll-over conditions, and therefore the exemption was applied to defer the balance of your capital gain. Under this concession, you had until 2012 to acquire a replacement asset.

You requested an extension to the replacement asset period to allow you more time to acquire a replacement asset.

The Commissioner granted an extension of time to the replacement asset period until 2013. The decision to allow the extension of time was based on a consideration of the consequences of the extension and the fact that:

· you had made attempts to acquire a replacement asset

· at the time, you were currently in negotiations to purchase an asset

· there was no evidence of any mischief involved

The negotiations that were underway to purchase the replacement asset at the time of your original request for an extension, stalled, and ultimately were concluded without an acquisition in 2012.

You were approached by another company to set up a separate business. Discussions progressed, however no agreement could be reached.

You were also in discussions to acquire an interest in a company, this did not eventuate as you decided that the personal risks were too great.

You then showed interest in another business. Discussions commenced, but ultimately ceased as the business was withdrawn from the market.

You have been in discussions with another entity for a possible interest in the business. You believe that the business holds great potential for the future and discussions have focused on an agreement for purchase. You intend to have the matter settled by the end of the asset replacement period.

You believe that the purchase of a stake in the business will only absorb a proportion of the amount that needs to be invested in a replacement asset.

You are requesting a further extension of time to acquire a replacement asset until 20YY.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 Subsection 104-185(1)

Income Tax Assessment Act 1997 Subsection 104-190(2)

Income Tax Assessment Act 1997 Section 104-197

Income Tax Assessment Act 1997 Section 104-198

Reasons for decision

Detailed reasoning

If a taxpayer makes a capital gain from a CGT asset and satisfies all of the basic conditions in Subdivision 152-A of the ITAA 1997, the taxpayer may choose small business roll-over in Subdivision 152-E of the ITAA 1997.

There are roll-over conditions that must be satisfied by the end of the replacement period, if the roll-over conditions are not met within the replacement asset period, the gain will become assessable.

One such condition, specified in subsection 104-185(1) of the ITAA 1997, requires a taxpayer to acquire a replacement asset within a period starting one year before, and ending two years after the date of disposal of the original asset.

However, subsection 104-190(2) of the ITAA 1997 states that the Commissioner may exercise his discretion to extend this time limit.

In determining if discretion should be exercised, the Commissioner would consider the following factors:

· Whether there is 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

· Whether there are any prejudices to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension

· Whether there is any unsettling of people, other than the Commissioner, or of established principles

· Fairness to people in like position and the wider public interest

· Whether there is any mischief involved, and

· A consideration of the consequences.

The Commissioner will generally only exercise his discretion where a taxpayer can demonstrate that they have actively sought to comply with their tax obligations, but were not able to comply through no fault of their own.

In your case, you disposed of your interest in a business in 20XX and chose to defer the capital gain remaining (after applying the 50% CGT discount and the 50% active asset reduction) under the small business roll-over concession.

You were unable to acquire a replacement asset within the 3 year replacement asset period which ended in 20ZZ. Accordingly, you applied for an extension until 2013, and the extension was granted, based on the fact that you were able to demonstrate that you had made several attempts to find a replacement asset and that you were currently in negotiations to acquire a replacement asset.

The negotiations to acquire the replacement asset (as discussed above) ended in 20ZZ with no acquisition taking place.

Since this time, you have again made attempts to acquire a replacement asset, namely an interest in a number of different businesses. You state that you have now entered into negotiations to purchase an interest in a business by the extended asset replacement period date. However, the purchase will only absorb a proportion of the amount that needs to be invested in a replacement asset as per the conditions of the small business roll-over concession. Therefore, you are requesting a further extension of time.

Having considered the relevant factors against the specific circumstances of your case, in particular;

· you have always been aware of the amount required to be incurred in acquiring a replacement asset/s

· you have already been given an extension of 12 months

· you still, at the time of your application, have not actually acquired any asset/s

· you have not identified any further asset/s that may be suitable to be acquired, and

· the consideration of fairness to people in like situations

The Commissioner will not exercise the discretion under subsection 104-190(2) of the ITAA 1997 to allow an extension to your already extended time limit to acquire a replacement asset.

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