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Edited version of private advice
Authorisation Number: 1012629301173
Ruling
Subject: Capital gains tax
Question
Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to acquire a replacement asset?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:
• the application for private ruling, and
• the documents provided with the application for private ruling.
Individuals A and B are partners in a partnership.
The partnership operated a business.
The business was sold and both partners made a capital gain.
The partners each applied the 50% general discount and the 50% active asset reduction.
The partners applied the small business rollover concession to the remaining capital gain.
Since this time, the partners have made continuing efforts to find a replacement asset.
The partners expect to purchase a replacement asset within the next X weeks via a trust.
The partners will acquire an interest in the trust and the trust is in the process of acquiring a business.
The partners have previously entered negotiations to purchase a business, however the contracts fell through.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 104-185
Income Tax Assessment Act 1997 section 104-190
Reasons for decision
The small business rollover allows you to defer the capital gain made from a capital gains tax (CGT) event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A of the ITAA 1997.
For you to obtain a rollover, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset, and that it be an active asset of yours, within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) of the ITAA 1997 states that the Commissioner may exercise his discretion to extend those time limits.
The two year limit in which to find a replacement has expired.
In determining if the discretion would be exercised the Commissioner has considered the following factors:
• evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension)
• prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)
• unsettling of people, other than the Commissioner, or of established practices
• fairness to people in like positions and the wider public interest
• whether any mischief is involved, and
• consequences of the decision.
Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) of the ITAA 1997 and allow a reasonable extension to the time limit. Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions. The period of extension has a reasonable explanation given the circumstances and an extension will be granted.
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