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Edited version of your written advice
Authorisation Number: 1051265152791
Date of advice: 9 August 2017
Ruling
Subject: CGT –small business concessions -extension of replacement asset period
Question 1
Will the Commissioner exercise his discretion to extend the replacement asset period pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the small business capital gains tax (CGT) replacement asset roll-over relief?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2018.
The scheme commences on:
July 2015.
Relevant facts and circumstances
A company sold a business.
The company elected to apply the small business roll-over to acquire a replacement asset.
The company would like to acquire a new business in a different industry.
The company’s sole director has some experience in an unrelated industry through another entity.
Some efforts have been made to acquire a replacement asset through networks in the unrelated industry, mainly through word of mouth.
The company has been unable to acquire a replacement asset before the end of the replacement asset period, due to medical circumstances that have impacted that company’s sole director who has been unwell, impacting their ability to continue searching for a replacement asset.
The company’s sole director has been receiving treatment from a specialist on a regular basis in with respect to the medical issue.
The company is small business entity that meets the aggregated turnover test of less than $2 million for the relevant year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 152-A
Income Tax Assessment Act 1997 Subdivision 152-E
Income Tax Assessment Act 1997 Subsection 104-185(1)
Income Tax Assessment Act 1997 Subsection 104-190(2)
Income Tax Assessment Act 1997 Section 104-197
Income Tax Assessment Act 1997 Section 104-198
Reasons for decision
The rules covering the small business roll-over are contained in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997). The small business roll-over allows you to defer all or part of a capital gain from a capital gains tax (CGT) event happening to an active asset.
CGT event J5 happens if you choose a small business roll-over under Subdivision 152E of the ITAA 1997 and you have not acquired a replacement asset by the end of the replacement asset period.
The replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the roll-over.
The replacement asset period may be extended or modified by the Commissioner.
In determining whether to allow an extended asset replacement period the Commissioner considers the following factors:
● whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension
● whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension)
● whether there is any unsettling of people, other than the Commissioner, or of established practices
● the need to ensure fairness to people in like positions and the wider public interest
● whether there is mischief involved, and
● the consequences of the decision.
The company has been unable to acquire a replacement asset due to an ongoing medical issue that has impacted the sole director’s ability to search and acquire a replacement asset. Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions. There is also no evidence of any mischief involved.
Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner will exercise his discretion to extend the replacement asset period.
Additional information
This ruling has not considered your eligibility for the small business rollover concession. You should ensure that you satisfy the basic conditions and the other conditions relevant for the concession. More information can be found at Capital gains tax concessions for small business, which is available on our website www.ato.gov.au.
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