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Edited version of your written advice
Authorisation Number: 1051457751513
Date of advice: 27 November 2018
Ruling
Subject: Compulsory acquisition rollover relief
Question
If the original asset was an industrial rental property, will a commercial rental property such as an office block, retail shop or a combination of both qualify as a complying replacement asset under subsection 124-75(4) of the Income Tax Assessment Act 1997 (ITAA 1997) to use for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset just before the event happened?
Answer
Yes.
Taxation Determination TD 2000/42 provides guidance as to whether an asset is used for a similar purpose. The determination states that whether an asset is used for the same or similar purposes as another asset is a question of fact and degree. Where an original asset was used to earn residential rental income and a replacement asset is used to earn commercial rental income, those uses would fall within the scope of the same or similar purpose test to satisfy the purposes of the legislation.
You owned an industrial property which was used to derive rental income. You are considering replacing the industrial property, which has been compulsorily acquired, with a commercial rental property to be held to derive rental income. It is accepted that a commercial rental property used to derive rent would satisfy the replacement asset requirements under subsection 124-75(4) of the ITAA 1997.
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You purchased an industrial property a number of years ago.
You leased the property to a third party to derive rental income since the property was acquired.
The property was compulsorily acquired by an Australian government agency.
You wish to access the rollover under Subdivision 124-B of the ITAA 1997 to acquire a replacement asset.
You are considering purchasing a commercial rental property as the replacement asset to use to derive rental income.
You have entered into discussions to purchase a replacement asset but have not entered into any contractual arrangement to purchase a replacement asset.
You intend to incur expenditure on replacement CGT assets, to satisfy section 124-75 of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 124-70
Income Tax Assessment Act 1997 Section 124-75
Income Tax Assessment Act 1997 Subsection 124-75(4)
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