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Edited version of your written advice
Authorisation Number: 1051366939123
Date of advice: 2 May 2018
Ruling
Subject: Small business concessions
Question
Will the Commissioner exercise his discretion to extend the replacement asset period under section 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You held shares in a company.
You agreed to sell the shares.
The sale of the shares resulted in a capital gain.
You were eligible for and elected to apply the small business rollover.
It is you intention to either purchase or start up another business in the industry and build it.
As part of the sale of the shares you must not carry on, acquire, operate or be engaged or involved in any trade, business, or undertaking which is in competition with your former company for a period of three years.
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 small business roll-over allows you to defer the capital gain made from a Capital Gains Tax (CGT) event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A of the ITAA 1997.
You can choose the roll-over even if you have not yet acquired a replacement asset. However CGT event J5 happens if, by the end of the replacement asset period, you do not acquire a suitable replacement asset which is an active asset. CGT event J6 happens if, by the end of the replacement asset period, the cost base (first, second and fourth elements only) of the replacement asset(s) you acquired is less than the capital gains disregarded under the roll-over provisions.
For you to obtain a roll-over, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) states that the Commissioner may exercise his discretion to extend those time limits.
In determining if the discretion would be exercised, the Commissioner must have considered the following 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 any mischief is involved, and
● consideration of the consequences.
The Commissioner will generally only exercise his discretion where a taxpayer can demonstrate that they have actively sought to comply with their tax obligations, but were not able to comply through no fault of their own.
In your case, you sold your shares and chose to defer the capital gain under the small business rollover provision.
You state that you are unable to acquire a replacement asset within the replacement asset period due to a restraint of trade clause. However this clause does not prohibit you from replacing the asset with a business that does not compete with your previous business.
Additionally, as you agreed to sell the shares with the restraint of trade clause in place, it is not considered that the cause of the delay is out of your control.
Having considered the relevant factors against the specific circumstances of your case, the Commissioner will not exercise the discretion under subsection 104-190(2) of the ITAA 1997 to allow an extension to the replacement asset period.
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