Edited version of private advice

Authorisation Number: 1051723445911

Date of advice: 21 July 2020

Ruling

Subject: Replacement asset roll-overs for assets compulsorily acquired

Question

Will the Commissioner exercise his discretion under subsection 124-75(3) of the Income Tax Assessment Act 1997 to allow a one-year extension of time to acquire a replacement asset?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 20xx to year ending 30 June 20xx

The scheme commences on:

Xx of xx 20xx

Relevant facts and circumstances

The property is owned by a Partnership and was acquired after 20 September 1985.

The Partnership received a Notice of Intention to Resume for the property from a government entity under a power of compulsory acquisition conferred by an Australian law.

The Partnership proceeded to negotiate the sale of the property and entered into a sale Contract for Commercial Land and Buildings with the government entity as buyer.

The sale contract was settled with a purchase price of $XX,XXX,XXX.

No Notice of Resumption has been tendered as the Partnership entered into a contract of sale with the government entity.

During calendar year 2020, COVID-19 became a pandemic and significantly impacted many aspects of society. Governments imposed sweeping restrictions that included social distancing among other restrictions to gatherings of people.

The restrictions imposed by the government to protect the health and wellbeing of the community impacted the due diligence process. Inspections could not be undertaken, the legality of lease recoverability was in question subject to the drafting and finalisation of legislation which has taken the form of a Mandatory Code of Conduct as it currently stands. The environment created by COVID-19 made any reasonable due diligence practically and commercially unviable.

The Partnership made an offer to purchase a commercial retail property when COVID-19 put a hold on everything, subsequently pushing any potential acquisition into the next financial year.

Before the height of the pandemic, one replacement asset was acquired.

No other purchase for replacement assets have been made.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 104-10(6)

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 Section 124-70

Income Tax Assessment Act 1997 Section 124-75

Income Tax Assessment Act 1997 Section 124-85

Reasons for decision

The asset was compulsorily acquired under a power of compulsory acquisition conferred on the government entity by an Australian law for monetary compensation, satisfying section 124-70 of the ITAA 1997.

Where monetary compensation is received for the acquisition of the asset, section 124-75 of the ITAA 1997 outlines further requirements that must be satisfied in order to be able to choose the roll-over.

Subsection 124-75(3) of the ITAA 1997 states that at least some of the expenditure to replace the compulsorily acquired asset has been incurred no earlier than one year before the event and no later than one year after the end of the financial year in which the event occurred, unless such further time is allowed by the Commissioner in special circumstances.

Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997 (TD 2000/40) sets out the Commissioners view on special circumstances for the purpose of extending the replacement asset roll-over period in Subdivision 124-B.

TD 2000/40 provides that the expression 'special circumstances', by its nature, is incapable of a precise and exhaustive definition, and that what constitutes 'special circumstances' depends on the facts of each particular case.

The situation faced by the Partnership as a result of the COVID-19 crisis is not contemplated in TD 2000/40 but can reasonably be seen to be extraordinary in nature and impact; and subsequently falls within the broad definition of 'special circumstance' as explained in TD 2000/40.

The Commissioner accepts that locating and purchasing suitable replacement properties can take significant time, effort, and resources and the current situation as a result of COVID-19 would see this process take longer.

You have provided evidence that COVID-19 has impacted on your ability to locate suitable replacement assets, carry out due diligence on the replacement assets.

For these reasons, the Commissioner accepts that the Partnership have a special circumstance that warrants the Commissioner's discretion to extend the time to find replacement assets for a further year to the end of the next financial year under subsection 124-75(3) of the ITAA 1997.

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