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Edited version of your written advice
Authorisation Number: 1051207955385
Date of advice: 27 April 2017
Ruling
Subject: CGT-Replacement Asset Rollover-Extension of Time
Question 1
Will the Commissioner exercise his discretion pursuant to Subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to purchase a replacement asset in order to meet the eligibility requirements for small business rollover under Subdivision 152-E?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 20yy
Year ended 30 June 20yy
Year ended 30 June 20yy
The scheme commences on:
March 20yy
Relevant facts and circumstances
1. You sold your farming property. The contract to sell was signed on dd/mm/yyyy.
2. You sold your property because you intend to purchase a half share in the neighbouring property to further your farming business and utilise the CGT small business rollover concession.
3. When contracts were to exchange in 20yy, the other party who you were to purchase the neighbouring property with, exercised their rights to purchase the property in full, leaving you unable to purchase the half share of the neighbouring property as a replacement asset.
4. In 20yy, you entered into a verbal agreement to purchase a second property. In negotiations, it was found that the owner of the second property had accepted the purchase offer of another buyer.
5. In 20yy, you made an offer for a third property but the vendor declined the offer after accepting a higher bid and refused further negotiation.
6. Currently, you have made an offer on a fourth property with the intent of securing a contract to purchase. You expect the contracts to exchange soon.
7. Despite your repeated attempts to purchase a replacement asset prior to the two year roll over period ceasing, you have been unsuccessful in purchasing a replacement asset.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 104-190(2)
Reasons for decision
1. Subdivision 152-E of the ITAA 1997 allows a small business to 'rollover', that is to defer, all or part of a capital gain made from a capital gains tax (CGT) event happening to an active asset.
2. A condition of choosing the rollover is that you must replace the active asset or incurred expenditure on a capital improvement to an existing asset by the end of the replacement asset period. This period starts one year before and ends two years after the relevant CGT event (subsection 104-190(1A) of the ITAA 1997).
3. However, under subsection 104-190(2) of the ITAA 1997, the Commissioner may extend the replacement asset period in certain circumstances.
4. In determining if the discretion to extend the replacement asset period would be exercised, the Commissioner will consider these relevant 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.
5. In your circumstances, you sold your farming property on dd/mm/yyyy.
6. You intend to purchase a half share in the neighbouring property to further your farming business and to utilise the CGT small business rollover concession. However, you were unable to proceed with the purchase of this half share as a replacement asset.
7. You continued looking for a replacement property throughout the replacement asset period. You have inspected two other properties but you remain unsuccessful in purchasing a replacement asset.
8. You have made an offer on a fourth property with the intent of securing a contract to purchase and you expect the contracts to exchange soon.
9. Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner is able to exercise his discretion under subsection 104-190(2) 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.
10. You have provided a reasonable explanation given the circumstances and an extension will be granted until dd/mm/yyyy.
Additional information
This ruling has not considered your eligibility for the small business rollover. You should ensure that you satisfied the basic conditions and the other conditions for the rollover. More information is available in the guide Capital gains tax concessions for small business which available on our website www.ato.gov.au.
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