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Edited version of your written advice
Authorisation Number: 1012688792047
Ruling
Subject: CGT - SBC - extension of time to acquire a replacement asset
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 to 20XX?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You sold a CGT asset in 20XX.
The sale contract contained a restraint of trade clause.
At the time of the sale you were not in a position as a family to set up a new business. You had a very young child and really couldn't commit to the time needed to start a new business.
More than a year later you went overseas as both you and your spouse have family there.
You returned overseas almost a X years later for approximately X months, as there was an illness in the family you are spending time with them.
You are looking to return overseas again around approximately X years from now.
You have been in discussions with a business owner who is looking for a partner in a new office. Together you have chosen a location and are doing ground work with a view to open towards the end of 20XX.
You have asked for an extension of time to acquire a replacement asset to 20XX.
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 (subsection 104-190(2) of the 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 disposed of your real estate business on 31 July 2011. 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 have stated that the initial delay in purchasing a replacement asset was because you were not in a position as a family as you had a very young child and couldn't commit to the time needed to start a new business. A subsequent delay was due to an illness in your spouse's family overseas. This is not considered to be acceptable explanations for the delay.
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 is for the following reasons:
• In your case it is difficult to say there is evidence of an acceptable explanation for the period of extension requested. The initial reasoning for the delay is purely a personal and private decision due to your young family. It was a conscious decision of yours to not consider a replacement asset for a period of time. The Commissioner appreciates that your subsequent delay was unfortunate; however this family emergency occurred approximately X years after the sale of the business. These are therefore not considered to be exceptional circumstances beyond your control that prevented you from acquiring a replacement asset
• 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 would 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 X years effectively allows a deferral of the capital gain for X years. 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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