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Edited version of private advice
Authorisation Number: 1051234411270
Date of advice: 05 July 2017
Ruling
Subject: Small business rollover - extension to replacement asset period
Question
Will the Commissioner exercise his discretion under section 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2015
The scheme commences on:
1 July 2014.
Relevant facts and circumstances
You acquired a business approximately 15 years ago.
Several months later you bought the land and the building where your business was based.
About four years ago you were looking to relocate to another area when your child was starting high school.
You bought grazing land to run a cattle farm in partnership with your partner.
Not long after, you were verbally approached by a potential buyer wanting to purchase your business.
Over a period of 8 months, negotiations and meetings with the potential buyer took place but did not materialise.
You advertised your business for sale 8 months after you bought the grazing land.
You sold your business and the real property about 15 months after you put it on the market.
You continued to run the business for two years after you purchased the grazing land.
You made a capital gain on the sale of the business.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 104-190(1)
Income Tax Assessment Act 1997 Subsection 104-190(2)
Reasons for decision
Where an election is made to take advantage of the small business rollover, there are rollover conditions that must be satisfied by the end of the replacement asset period. This period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the rollover. If the rollover conditions are not met within the replacement asset period the gain will become assessable.
You acquired grazing land about 4 years ago, some 23 months prior to the disposal of your business. This acquisition occurred outside of the replacement asset period. However the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the Income Tax Assessment Act 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.
In your case, you started your business some 15 years ago.
About 4 years ago you acquired grazing land to run a cattle farm in partnership with your partner. Shortly after, you were verbally approached by a potential buyer of your business. You continued to negotiate and meet with the potential buyer for about 8 months; however, the transaction did not materialise. At that point you decided to advertise your business for sale and continued to run it for a further 2 years.
The Commissioner's view regarding your circumstances is that:
- you may have had an intention to relocate to another area for your child to start high school but you did not show any intention of selling your business and buying another prior to acquiring the grazing land.
- you advertised your business for sale 8 months after you have acquired the grazing land.
- you bought the grazing land 4 years ago, however, you continued to run your business for a further 2 years.
Having considered all the relevant factors, the Commissioner is of the opinion that you have not provided an acceptable explanation nor have special circumstances for the period of extension to be granted. Although the delay was understandable in the circumstances, it was not entirely beyond your control.
Therefore, in your case, the Commissioner will not exercise the discretion under subsection 104-190(2) of the ITAA 1997 to extend the replacement asset period.
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