1051662556064 | Legal database

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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private advice

Authorisation Number: 1051662556064

Date of advice: 23 April 2020

Ruling

Subject: Income tax - CGT - replacement asset period

Question

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension to the replacement asset period to mid 20XX?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Trustee sold real property used in a connected small business and the business was separately sold by the connected entity soon after.

You were eligible, and elected to use the small business capital gains tax (CGT) concessions on sale of the real property in your income tax return for the year ended 30 June 20XX, specifically the replacement asset rollover.

The decision was made to commence a new business. With this in mind, the Trustee then began to consider their need for commercial premises suitable to operate the proposed new business.

The Trustee faced with the recent outbreak of global coronavirus has significantly impacted on the Trust's ability to meet the two year time period in respect of incurring start-up expenses for the new business with planned further international travel to establish trade contacts for their new business now effectively impossible due to global quarantine restrictions.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-190

Income Tax Assessment Act 1997 section 104-197

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 Subdivision 152-A

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997)unless otherwise stated.

Question 1

Summary

The Commissioner will exercise his discretion under subsection 104-190(2) to allow an extension to the replacement asset period to mid 20XX.

Detailed reasoning

Subdivision 152-E contains the provisions regarding the small business roll-over relief. Under sections 152-410 and 152-415, the small business roll-over relief allows entities that satisfy the conditions in Subdivision 152-A to defer all or part of each capital gain arising from a CGT event happening to an active asset.

This roll-over is available to the entity even if they have not acquired a replacement asset at the time of claiming the roll-over, however CGTevent J5 will happen under section 104-197 if by the end of the replacement asset period a replacement asset is not acquired or the replacement asset is not an active asset.

Subsection 104-190(1) provides that the replacement asset period starts one year before the last CGT event in the income year for which you obtain the rollover and ending the later of:

two years after that last CGT event
six months after the latest possible time a possible financial benefit becomes due under a look-through earn-out right relating to the disposal of a CGT asset.

Subsection 104-190(2) provides that the Commissioner may extend the replacement asset period.

In determining if the discretion would be exercised the Commissioner has 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 there is any mischief involved, and
consideration of the consequences.

You have provided a number of reasons for requesting that the Commissioner allow an extension to the replacement asset period beyond two years to mid 20XX.

We accept your explanation for the extension to the replacement asset period therefore the Commissioner will exercise his discretion under subsection 104-190(2) to extend the replacement asset period to mid 20XX.

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