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Edited version of your written advice
Authorisation Number: 1051334038100
Date of advice: 7 March 2018
Ruling
Subject: Replacement Asset Rollover – Extension of Time.
Question
Will the Commissioner exercise his discretion under section 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the Trustee of the Trust until 1 year after the date on which the Trust resolves its dispute with the Government Authority in relation to the quantum of compensation for the compulsory acquisition of the leasehold interest in the Property held by the Trust to incur expenditure to acquire another CGT asset under section 124-75(2) of the ITAA 1997?
Answer
Yes, the Commissioner will exercise his discretion under section 124-75(3)(b) of the ITAA 1997 to allow the Trustee until 1 year after the date on which the Trust resolves its dispute with the Government Authority in relation to the quantum of compensation for the compulsory acquisition of the leasehold interest in the Property to incur expenditure to acquire another CGT asset under section 124-75(2) of the ITAA 1997.
This ruling applies for the following periods:
Starting 1 July 2017 until 12 months after the date on which the Trust resolves its dispute with the Government Authority in relation to the quantum of compensation for the compulsory acquisition of the leasehold interest in the Property.
The scheme commences on:
The scheme has already commenced.
Relevant facts and circumstances
The Trustee of the Trust attained a leasehold interest in the Property.
The Government Authority compulsorily acquired the Property by way of Gazette Notice, the effect of which was that the Trustee’s interest in the Property was terminated.
The Trustee is entitled to compensation under the relevant legislation.
The Trustee entered into negotiations to determine the amount of the compensation.
Negotiations to determine the amount of the compensation failed.
The Valuer-General was subsequently engaged by the Government Authority to provide an assessment of the compensation payable to the Trustee.
The Trustee filed an application with the Court (the Proceedings) objecting to the Valuer-General's determination of the compensation amount.
The time frame for the settlement of this matter is unknown and difficult to predict.
As at the time of issuing this ruling, the Trustee has received nil compensation in respect of the compulsory acquisition.
The Trustee has not incurred any expenditure to date to acquire a replacement property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Paragraph 124-75(3)(b)
Reasons for decision
Paragraph 124-75(3)(b) of the ITAA 1997 provides that one of the requirements for satisfying replacement asset rollover if you receive money for compulsorily acquired asset, is that in incurring expenditure in acquiring a replacement CGT asset, at least some of the expenditure must be incurred:
(b) no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens.
The Commissioner's views as to when the discretion in paragraph 124-75(3)(b) of the ITAA 1997 will be exercised is set out in Taxation Determination: Income Tax: capital gains: what are ‘special circumstances’ for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997 TD (TD 2000/40).
TD 2000/40 states that the expression ‘special circumstances’ by its nature is incapable of a precise or exhaustive definition, and ‘it depends on the facts of each particular case’.
In TD 2000/40, four examples were provided to illustrate the application of the Commissioner’s discretion. Example 3 is extracted as below:
Graeme had a commercial property compulsorily acquired by a State authority. Graeme is having a protracted legal dispute with the authority over the quantum of the compensation. On these facts, we would accept that there are special circumstances to allow further time.
The facts of this case are very similar to Example 3 in TD 2000/4:
● The Trustee held a leasehold interest in the Property which was compulsorily acquired by the Government Authority.
● The Trustee and the Government authority failed to reach an agreement as to the amount of compensation for the compulsory acquisition.
● Legal proceedings in relation to the quantum of compensation have commenced.
● At this stage, the time frame for the settlement of this matter is unknown and it is difficult to predict.
● To date, the Trustee has not received any compensation since the compulsory acquisition.
● The Trustee has not incurred any expenditure to acquire a replacement property.
In light of the abovementioned considerations, we are of the view that the present case constitutes a ‘special circumstance’ in paragraph 124-75(3)(b) of the ITAA 1997 warranting the Commissioner’s discretion for an extension of time to purchase the replacement asset. The extension period would be 12 months from the date of finalisation of the dispute between the Trustee and Government Authority in relation to the quantum of compensation for the compulsory acquisition of the Property, to incur expenditure to acquire a replacement CGT asset.
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