Edited version of private advice

Authorisation Number: 1051741125656

Date of advice: 24 August 2020

Ruling

Subject: CGT - small business concessions

Question 1

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period following the sale of the Property to 30 June 2021?

Answer 1

Yes.

Question 2

Can an entity, other than the Trust (the Trust), acquire a replacement asset to prevent capital gains tax (CGT) event J5 from occurring at the end of the replacement asset period?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Trust entered into a contract to the Property.

Due to various special conditions, such as a development approval, settlement has been extended.

The Trust will make a capital gain on the disposal of the Property.

The Trust is a CGT small business entity.

The Trust has operated a business on the Property since its acquisition.

The Trust will elect to apply the CGT small business rollover to all or part of the capital gain made from the disposal of the Property.

The trust had previously applied for a private ruling and had been granted an extension to the Small Business Concessions for Capital Gains for a replacement active asset until XX X 20XX.

Due to the economic impacts of COVID-19 pandemic you have found it extremely difficult to source suitable business opportunities due to the uncurtaining and restrictions of the current environment.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-190(2)

Income Tax Assessment Act 1997 section 104-197

Income Tax Assessment Act 1997 subdivision 152-E

Detailed reasoning

Question 1

Where the relevant conditions are met, a taxpayer can choose the CGT small business rollover under Subdivision 152-E of the ITAA 1997 to defer all or part of a capital gain. Further CGT events will happen where the rollover is chosen, and certain conditions are not met within the replacement asset period.

The replacement asset period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the roll over, or a longer period that the Commissioner allows.

In this case, having considered the relevant factors, particularly the delayed settlement and the current the economic impacts of COVID-19 pandemic, the Commissioner considers it would be appropriate to extend the asset replacement period to 30 June 20XX.

Question 2

Section 104-197 of the ITAA 1997 deals with the consequences that arise if a replacement asset is not acquired by the end of the replacement asset period. Subsection 104-197(1) of the ITAA 1997 states that CGT event J5 will occur if 'you' have not acquired a replacement asset within the replacement asset period. In this instance, 'you' refers to the entity that chose the small business rollover. There are no provisions that allow the replacement asset to be acquired by any other entity.

Accordingly, if a replacement asset is acquired by any entity other than the Trust, the rollover conditions will not be satisfied. This is the case even if the other entity is controlled by the same individuals.

Further issues to consider

Section 328-475 of the ITAA 1997 deals with the consequences that arise when a replacement asset (within the meaning of sections 104-185, 104-190, 104-197 and 104-198) is transferred as a part of the small business restructure rollover under Subdivision 328-G of the ITAA 1997. It provides that the transferee of the asset is treated as being the entity that made the choice under Subdivision 152-E of the ITAA 1997.

This provision does not allow a different entity to acquire a replacement asset under the CGT small business rollover. It simply ensures that where a replacement asset (already acquired by the original entity) is transferred to a new entity under the small business restructure rollover, the consequences of making a choice under Subdivision 152-E are transferred to the new asset owner.

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