Edited version of your written advice

Authorisation Number: 1013073938310

Date of advice: 17 August 2016

Ruling

Subject: CGT - Compulsory Acquisition Rollover - Commissioner's Discretion - further time to lodge

Question 1

Will the Commissioner exercise his discretion available under paragraph 103-25(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to provide an extension of time for you to elect to acquire a rollover replacement asset?

Answer

Yes

This ruling applies for the following periods:

1 July 20XX to 30 June 20YY

1 July 20YY to 30 June 20ZZ

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The taxpayer was the owner of X properties, with the original interests acquired on a date in 19XX.

On a date in 201X a government authority served a "Notice of Intention to Acquire" the properties as part of a project. The authority issued the taxpayer with a Notice of Acquisition - Compulsory Acquisition of Interest in Land for the properties. Ownership vested in the authority on a date in 201X. Compensation money was paid on a date in 201Y.

The taxpayer purchased from an associate the remaining X% portion of X rental properties on a date in 201Y, becoming the X% owner of the properties.

The taxpayer engaged a new tax agent to manage their future tax affairs. As part of that process, they asked the new tax agent to review their previous tax return before it was lodged. The new tax agent identified the possibility of the taxpayer accessing the replacement property rollover concessions.

The taxpayer informed their existing tax agent of their intention to claim a rollover exemption under section 124-70 for the purchase of the replacement properties; however the taxpayer's return was lodged unamended on a date in 201Y. A capital gain on the disposal of the properties was reported.

The taxpayer wishes to amend their return to give effect to the rollover provisions.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 103-25

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

Reasons for decision

Summary

The Commissioner will exercise his discretion under subsection 103-25(1) in your favour by allowing you to amend your 20XX-YY tax return to make a valid choice.

Detailed reasoning

Involuntary disposal of a CGT asset

Section 124-70 describes different incidents when a roll-over is available to an entity if that incident happens to the Capital Gains Tax (CGT) asset of that entity. According to subsection 124-70(1), an entity is able to choose a roll-over if the CGT asset that the entity owns is compulsorily acquired by an Australian government agency. Subsection 124-70(2) states that to be eligible for a roll-over, the entity must receive money or another CGT asset as compensation for the event happening.

You received compensation from an Australian government agency for the compulsory acquisition of your property. Therefore you are eligible to choose a roll-over in relation to the capital gain that you received from the compulsory acquisition

Exercising a Valid Choice

The general rule is that a choice available under the capital gains tax (CGT) provisions, once made, cannot be changed. Generally, such a choice must be made by the time the income tax return is lodged, or within such further time as the Commissioner allows (subsection 103-25(1) of the ITAA 1997).

A taxpayer who has considered the application of the CGT concessions and chosen a particular concession has made a choice which cannot later be changed. However, a taxpayer who did not consider the CGT concessions and accordingly included a capital gain in their income tax return has not made a choice and can, if the Commissioner allows further time, later make a choice for a CGT concession to apply and amend their return to reduce or disregard the capital gain.

In determining if the Commissioner should use his discretion to allow an extension of time the following will be considered:

• 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

In your case, your 20XX-YY return was lodged showing a capital gain. Usually this would represent the making of a choice. However you were not aware of the rollover provisions at the time the return was prepared, and when you became aware of the CGT rollover choice available, you elected to make the rollover and informed your tax agent. We consider that the lodging of your original 20XX-YY return did not represent you making a genuine choice under section 103-25, and so we will allow you additional time to amend your return and make a valid roll-over election.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).