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Edited version of your written advice
Authorisation Number: 1051390131068
Date of advice: 2 July 2018
Ruling
Subject: Small business concessions - replacement asset rollover - extension of time
Question
Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the beginning of the replacement asset period?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 20xx
Year ending 30 June 20xx
The scheme commenced on:
1 July 20xx
Relevant facts
You operated a business (Business ‘A’)
You decided after a number of years that you would like to operate another business in a different location.
You located a suitable premise and commenced trading in 2016. (Business ‘B’)
You did not place business ‘A’ on the market whilst Business ‘B’ was being established. However a short time later you commenced the process to sell business ‘A’.
You engaged the services of a professional agent to facilitate the sale of the business a short time later.
You entered into a contract for sale of the business ‘A’ a short time later.
Relevant legislative provisions:
Income Tax Assessment Act 1997 paragraph 104-185(1)(a)
Income Tax Assessment Act 1997 subsection 104-190(2)
Income Tax Assessment Act 1997 subsection 104-197(1)
Income Tax Assessment Act 1997 subsection 104-197(5)
Income Tax Assessment Act 1997 subsection 104-198(1)
Income Tax Assessment Act 1997 subsection 104-198(4)
Income Tax Assessment Act 1997 Subdivision 152-E
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 made 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 152-E and you have not acquired a replacement asset by the end of the replacement asset period.
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 gain disregarded under Subdivision 152-E.
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.
You disposed of business ‘A’ on xxx, being the date of the contract of sale. Accordingly the replacement asset period is one year before, and two years after this date. As you acquired business ‘B’ on xxx the acquisition occurred outside of the replacement asset period.
In determining whether to modify the replacement asset period the Commissioner considers the following factors:
● whether there is evidence of an acceptable explanation for the modification requested and whether it would be fair and equitable in the circumstances to modify the period in such a way
● 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 modification)
● 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 any mischief involved, and
● the consequences of the decision.
In your case, you listed business ‘A’ for sale within the replacement asset period; however, you were unable to dispose of the property within the replacement asset period. The delay in disposing of the property was outside of your control.
Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner has applied his discretion to modify the start date of the replacement asset period to xxx, the date you acquired business ‘B’.
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