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Edited version of private advice
Authorisation Number: 1012640522647
Ruling
Subject: CGT - small business concessions
Question
Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period until 30 June 2015?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You sold your business over two years ago and you applied the capital gain rollover relief.
You are a member of industry brokerages so you get to look at all new businesses that go to the marketplace with a view of being able to purchase a new asset when a suitable business becomes available.
You have close ties to your major wholesaler so you are advised of new opportunities as they present.
Prices and conditions of new businesses have changed dramatically over the last few years and you are waiting for purchasing conditions to be more favourable in order to replace your sold assets.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 104-190(2)
Reasons for decision
In order to apply the small business rollover, a replacement asset must be acquired within two years after the relevant CGT event. However, the Commissioner may extend the replacement asset period in certain circumstances under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997).
The relevant factors in determining whether to extend the replacement asset period are:
• 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 sold your business over two years ago. You were required to acquire a replacement asset within two years of the disposal date.
In considering whether to exercise his discretion, the Commissioner needs to be satisfied that there were circumstances beyond your control that prevented you from finding a replacement asset within two years. You stated that the delay in purchasing a replacement asset was due to you waiting for purchasing conditions to be more favourable.
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 decision is based on the following reasons:
• In your case it is difficult to say there is evidence of an acceptable explanation for the period of extension requested. Although you have indicated that you are advised of new opportunities as they present and get to look at all new businesses as they go to the marketplace, you have not provided any documented attempts to acquire a replacement asset since the CGT event occurred.
• To allow an extension of time in your case is likely to unsettle people for the reasons discussed above, that is, lack of evidence of an acceptable explanation.
• While there is no suggestion of mischief in this case, it could not be considered fair to people in like positions to allow you an extension of time. Another application with similar circumstances would be denied.
• To allow an extension of time of two years would be to effectively allow a four year deferral of the capital gain. Such an extension of time is well in excess of usual practice without evidence of an acceptable explanation.
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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