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Edited version of your private ruling
Authorisation Number: 1012557632112
Ruling
Subject: Capital gains tax and involuntary disposal
Question and answer
Will the Commissioner exercise the discretion available under 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to provide you with an extension of time to acquire a replacement asset for the block of land you previously owned?
No.
This ruling applies for the following period
Year ended 30 June 2015
Year ended 30 June 2014
Year ended 30 June 2013
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You owned a block of land.
Your land was damaged by an unauthorised work carried out by the Council.
You had a long legal battle with the Council.
You disposed of your block of land to the Council after they entered into an agreement with you to purchase your block of land.
The Council did not advise you (verbally or in writing) that they intended compulsorily acquiring your property if you did not reach an agreement with them.
The council acquired the land from you as a way of settling a dispute over the damage caused by the unauthorised work.
You received a sum of money to replace the land.
The sum of money you received is not enough to cover increased building costs and would mean that you have to find land that is selling for a much lower price.
You have looked at townhouses and retirement villages as an alternative.
You have not replaced the land yet as you are elderly and you have had poor health and were hospitalised this year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 124-75(1).
Income Tax Assessment Act 1997 Subsection 124-75(3).
Income Tax Assessment Act 1997 Paragraph 124-70(1)(a).
Income Tax Assessment Act 1997 Paragraph 124-70(1)(c).
Reasons for decision
Section 124-70: Involuntary disposal of a CGT asset
Under subsection 124-70(1) of the ITAA 1997 you may be able to choose a roll-over if a Capital Gains Tax (CGT) asset is:
(a) compulsorily acquired by an Australian Government agency; or
(c) disposed of to an Australian government agency after the agency has served a notice on you:
a) inviting you to negotiate with the agency with a view to the agency acquiring the asset by agreement; and
b) informing you that if negotiations are unsuccessful, it will be compulsorily acquired by the agency under a power of compulsory acquisition conferred by law.
If you receive money for the sale of the asset then further conditions are imposed by section 124-75 of the ITAA 1997.
Under subsection 124-75(3) of the ITAA 1997 you must incur expenditure in acquiring another CGT asset no earlier than one year before the disposal happens and no later than one year after the end of the income year in which the disposal happens, or within such further time as the Commissioner allows in special circumstances.
Special circumstances
In determining whether special circumstances exist that will allow the Commissioner to extend the period for you to acquire a replacement asset regard must be had to Taxation Determination TD 2000/40.
Taxation Determination TD 2000/40 provides guidelines for interpreting subsection 124-75(3) of the ITAA 1997, in particular what are special circumstances.
In determining if the discretion would be exercised the Commissioner has considered the following factors:
· 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, and
· a consideration of the consequences.
Application to your circumstances
You disposed of your block of land to the Council after they entered into an agreement with you to purchase your block of land.
You have advised that you accepted the Council's offer to purchase your land because you wanted the stress of the negotiations to end.
In your case, the Council did not advise you (verbally or in writing) that they intended compulsorily acquiring your property if you did not reach an agreement with them, therefore, a compulsory acquisition of your land has not taken place.
As your land was not taken under a compulsory acquisition, rather the council acquired the land from you as a way of settling a dispute over the damage caused by the unauthorised works. As such, the rollover provisions do not apply to your situation, and the Commissioner cannot exercise his discretion to allow further time to acquire a replacement asset.
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